VCM47100 - VC loss relief: mixed holdings: only part of allowable loss qualifies for relief

ICTA88/S576 (1) & (5)

If a disposal includes shares that do and shares that do not qualify for VC loss relief under ICTA88/S574 you have to apportion the allowable loss to determine the VC loss relief available. The effect of pooling shares is that the cost of all the shares is averaged. You cannot simply take a proportionate part of the loss equal to the proportion of qualifying shares disposed of. ICTA88/S576 (1) provides that the amount of VC loss relief shall not exceed the amount that would have been deductible if the shares had not been part of a holding. For this purpose ICTA88/S576 (5) provides that a ‘holding’ means any number of shares of the same class in the same company held by one person in one capacity, not necessarily a TCGA92/S104 holding or a 1982 holding as referred to in VCM47050.

Example

An investor’s holding of shares in A Ltd comprises 100 shares acquired by subscription for £100 and another 100 shares purchased for £300. The total holding is 200 shares costing £400 and the average cost of each share is £2. If all the 200 shares are sold for £0.25 each the total allowable loss will be £350. Although half the shares held might qualify for VC loss relief as shares acquired by subscription, the relief potentially due is not half of £350. If the qualifying shares had not been part of a holding the amount deductible in computing the loss would have been only the £100 consideration given for them. This is the maximum amount of VC loss relief available. Effectively the relief is restricted to the allowable cost of the qualifying shares, or their value on 31 March 1982 if they were held then and a valid rebasing election has been made (see CG16700 onwards).