VCM64110 - VCT scheme: reliefs: 'front-end' income tax relief: withdrawing relief
ITA/S266 Front-end' income tax relief should be withdrawn, in whole or in part, if the shares in respect of which relief was claimed are disposed of within:
- five years of issue for shares acquired before 6 April 2000 or on or after 6 April 2006,
- three years of issue for shares acquired between 6 April 2000 and 5 April 2006.
In determining whether ‘front-end' income tax relief was given in respect of shares disposed of:
- shares acquired on an earlier day are treated as disposed of before those acquired on a later day, and
- between shares acquired on the same day, those in respect of which relief has been given are treated as disposed of only after any other shares acquired on the same day.
Normally the amount of relief to be withdrawn is the smaller of:
- the relief given on the shares disposed of, and
- the consideration for the shares on disposal at the lower rate for the year of assessment for which relief was given.
Example
‘A’ subscribes £100,000 for 100,000 VCT
shares in 1995-96. He claims ‘front-end' income tax relief of
£100,000 x 20% = £20,000. In 1997-98 he sells 10,000
shares for £2,000.
The ‘front-end' income tax relief to be withdrawn is
the smaller of:
- relief given on shares disposed of £20,000 x 10,000 /
100,000 = £2,000, and
- consideration £2,000 x 20% = £400.
The relief to be withdrawn is therefore £400.
However if shares are disposed of other than at arm's length
all the relief given in respect of the shares disposed of is
withdrawn.
VCT loses approval
‘Front-end' relief may also be withdrawn where a VCT loses
its approval.
If the VCT loses its approval then all relief given is
withdrawn in the following circumstances:
- where the VCT was provisionally approved,
where the VCT was fully approved, and
- for shares issued before 6 April 2000 or on or after 6 April 2006 that approval is lost within 5 years of the shares being issued, or
- for shares issued between 6 April 2000 and 5 April 2006 that approval is lost within 3 years of the shares being issued.
The investor is obliged to tell you if relief should be
withdrawn (see ‘provision of information’ below).
CT&VAT, (see
VCM60010 for address), can tell you
whether the VCT was provisionally or fully approved.
Disposals within marriage or a civil partnership
A disposal between spouses or civil partners who are living
together does not give a rise to a withdrawal of ’front-end'
income tax relief. The spouse or civil partner receiving the shares
is treated as having subscribed for them at the time they were
originally subscribed for by the other spouse or civil partner, and
as having received the ‘front-end' income tax relief received
by the other spouse or civil partner.
Any subsequent disposal, other than within marriage or a
civil partnership, which gives rise to a withdrawal of
‘front-end' income tax relief, is assessable on the spouse or
civil partner disposing of the shares.
Death
Death does not give rise to a withdrawal of ‘front-end' income tax relief, nor does any event occurring after death.
Provision of information
Individuals must tell HMRC within 60 days of coming to know of an event by reason of which ‘front-end' income tax relief should be withdrawn. Penalties under TMA70/S98 may be charged where they do not. CT&VAT (see VCM60010 for address) can provide you with further advice on this.
Assessments
Amounts of ‘front-end' income tax to be withdrawn should be recovered by assessment for the year of assessment in which relief was given.
