1.5 When is relief reduced
or withdrawn?
Tax relief will be withdrawn if, during the period set out
at paragraph 1.2.1:
- you or an associate become connected (see above) with the company
- the company loses its qualifying status. The circumstances in which this
can happen are set out in Part 2. It is
important to realise that the company may do something over which you have
no control which results in its losing its qualifying status, and your relief
being lost. But if a company ceases trading as a result of going into liquidation and the liquidation is for genuine commercial purposes, any Income Tax relief is not withdrawn.
Tax relief will be reduced or withdrawn if, during that
period:
- any of the shares are disposed of (unless the disposal
is to a spouse or civil partner - in those circumstances the shares are
treated as if the spouse or civil partner had subscribed for them)
- you (or an associate) 'receive value' from the company (or a person connected
with that company). What constitutes receiving value is set out at VCM26320.
It includes receiving a loan or benefit from the company, or the company
selling an asset to you at less than market value (or you selling an asset
to the company at more than market value). Relief can also be withdrawn
if the company repays or repurchases its own share capital from any
shareholder. How much Income Tax relief is withdrawn will depend on the
amount of the value received, but the whole of any deferred capital gain
will be brought back into charge. However, 'insignificant' amounts of value
received can be ignored, and there is also a facility in some circumstances
whereby if the value received is replaced as soon as is practicable, relief
will not be withdrawn.
Please note that you are required by law to inform your tax office within
60 days of any of the events above occurring.
