VCM60138 - VCT scheme: general: approval: 70% qualifying holdings condition: disregard of disposals: qualifying holdings received

ITA/S280A

A new qualifying holding for the purpose of S280A is a holding that itself forms part of the VCT’s qualifying holdings at the time that it is acquired. The most usual examples will be shares or securities acquired in share exchanges or reorganisations.

If new qualifying holdings are received as part of the consideration for the disposal of a qualifying holding, the proportion of the holding treated as retained under S280A(2)(a) is calculated using the formula;

TC- NQH
TC
Where

Disposal of qualifying holding – consideration received includes new qualifying holdings

Example

A VCT with full approval has qualifying holdings of £1.5m and total investments of £2m. Its qualifying holdings are therefore 75% by value of its total investments

On 31 July 2008 it disposes of a qualifying holding that it has held for more than 6 months. The holding was previously valued at £200,000 and is disposed of for consideration valued at £250,000 comprising £200,000 in cash and £50,000 in shares that will be qualifying holdings in the hands of the VCT.

Disposal: 10 April 2007

Original cost: £200,000

Total Proceeds: £250,000


Proceeds comprise:

• £200,000 in cash (monetary), and
• £50,000 in qualifying shares (non-monetary).

After disposal

Applying S280A(2)(a)

The market value of the total consideration (TC) is £250,000.

The market value of the new qualifying holding (NQH) is £50,000


The VCT is treated as retaining a proportion of the qualifying holding disposed of, calculated as follows:

TC-NQH £250,000- £50,000

TC = £250,000 = 0.8


This proportion is applied to the value of the qualifying holding disposed of;


£200,000 x 0.8 = £160,000


The VCT is therefore treated as retaining £160,000 in addition to the actual qualifying holdings of £1.35m, making a total of £1.51m



It is also treated as retaining £160,000 for the purpose of its total investments, making total investments before the application of S280A(2)(b) of £2.21m.

Applying S280A(2)(b)

The VCT’s total investments are then treated as reduced by the monetary consideration received, £200,000. The VCT’s total investments are therefore (£2.21m less £200,000 ) £2.01m

The calculation for the purpose of the 70% qualifying holdings condition will include the deemed retained holding, valued at £160,000, and the deemed reduction in the investments of £200,000 for 6 months following the date of the disposal. On 10 October 2007 these adjustments will cease to be made.