VCM46200 - VC loss relief: general: losses not qualifying for relief

ICTA88/S575 (3) & ICTA88/S576 (2)

There are two situations where an allowable loss on a qualifying disposal of qualifying shares may not qualify for VC loss relief.

Firstly, losses arising on a share exchange, company reconstruction or company amalgamation. Normally such a transaction will not give rise to any chargeable gain or allowable loss. The effect of TCGA92/S127 or TCGA92/S116 (10) will be that the transaction is treated as if there was no disposal at that time - see the guidance on shares exchanges etc. at CG52500 onwards. However, a loss could arise if the anti-avoidance provisions of TCGA92/S137 prevent TCGA92/S135 or TCGA92/S136 from applying the no disposal treatment. ICTA88/S575 (3) provides that VC loss relief is not available if an allowable loss arises because those anti- avoidance provisions have been invoked.

Secondly, the allowable loss normally arising from a disposal of qualifying shares may be reduced if the value shifting provisions of TCGA92/S30 apply, see CG13260 onwards. A restriction may apply where a scheme or arrangements:

• materially reduces the value of an asset, and
• gives rise to a tax-free benefit.

The scope of TCGA92/S30 is extended by ICTA88/S576 (2) when an allowable loss is the subject of a claim under ICTA88/S573 or ICTA88/S574. Then the amount of the allowable loss may be restricted as if any benefit was a tax-free benefit, and the amount available for VC loss relief reduced.

There are also special rules to determine what part of an allowable loss qualifies for VC loss relief when an allowable loss arises from a disposal of shares in a mixed holding containing both shares that qualify for the relief and shares that do not qualify - see VCM47000 onwards.