A company is incorporated in the UK in January 1985 and is
resident in the UK throughout its period of existence. At no time
are the company's shares quoted or listed on a recognised stock
exchange. For the first four years of its life the company is
dormant. In December 1989 the company begins the only trade that it
ever carries on, manufacturing household furniture. In June 1993
the company ceases trading with liabilities that greatly exceed its
assets. Thereafter the company is neither an excluded company nor
an investment company. The company remains dormant until struck off
the register in April 1997. The shareholders receive nothing for
their shares.
The company’s original share capital of 1,000 £1
ordinary shares was subscribed for at par by four individuals (A,
B, C and D), who each acquired 250 shares. In November 1989 C and D
sold their shares to E and F. In January 1990 A and F each
subscribe for a further 1,000 £1 ordinary shares each paying
£10 per share. In January 1993 B sells his 250 shares in a
bargain made at arm’s length to A for £1 in total.
The company satisfies all of the conditions for relief under
ICTA88/S574. Whilst the company traded for less than six years, it
was a trading company throughout its active life and at no time was
it an excluded company or an investment company. (Note that if the
company had traded for a continuous period of more than six years
it could have been an investment company or an excluded company
before it commenced the trading period and still have qualified for
relief). The company ceased trading in June 1993 and was struck off
(dissolved) in April 1997. A negligible value claim made in the
three years after cessation of trading could result in relief.
However a claim relying on ESC/D46 (see
VCM45850) made after dissolution would
not involve a disposal within three years of the cessation of trade
and would fail.
Investor A made a negligible value claim under TCGA92/S24 (2)
within three years of the cessation of trading and claimed VC loss
relief on the allowable loss arising. Investor A may claim in
respect of the £250 subscription paid in January 1985 and the
£10,000 subscription paid in January 1990. Investor A cannot
claim in respect of the 250 shares acquired from Investor B in
January 1993 because these were not subscribed for by Investor A.
Investor B may claim under Section 574 having sold the shares
in a bargain at arm's length (see the first bullet of
VCM45800).
Investors C and D have no claim under Section 574. When they
sold their shares the company was not a qualifying company - it was
not and had not been a trading company.
Investor E has no claim under Section 574 having acquired the
shares by purchase and not by subscription.
Investor F has no claim under Section 574 in respect of the
shares acquired by purchase in November 1989 but may claim in
respect of the shares subscribed for in January 1990 by way of a
negligible value made within three years of the cessation of
trading.
