VCM68800 - VCT: deferral relief: procedure for claims

The relief must be claimed but there is no statutory form. A claim in the return, computation, correspondence or, for 1996-97 onwards, SA, will be sufficient.

One of the conditions for deferral relief is that the taxpayer must first obtain income tax relief on the VCT shares. VCT shares may be used to defer a gain arising in the tax year before they are issued but this cannot happen until ‘front-end' income tax relief is given. This will often be after the end of the tax year in which the VCT shares are issued. But sometimes ‘front-end' income tax relief will be given before the end of the tax year in which the VCT shares are issued:

• where it is included in the PAYE tax code for that year, or
• where the payments on account for that tax year reflect ‘front-end' income tax relief.

Once ’front-end' income tax relief is given deferral relief can be set against the earlier year's gain before the end of the tax year in which the VCT shares are issued.

If the 'front-end' income tax relief is withdrawn because there is no income tax liability for the tax year the deferred gain must be brought back into charge for the year in which the disposal took place.

Example

An investor sells an asset giving rise to a gain of £30,000 on 1 January 1997. CGT will be due on 31 January 1998. They subscribe for £20,000 worth of VCT shares, which are issued on 1 June 1997, and claim ‘front-end' income tax relief shortly afterwards. This claim is reflected in their income tax payments on account of the tax liability for 1997-98. Before 31 January 1998 the investor amends the 1996-97 SA to defer £20,000 of the 1996-97 gain by using the deferral relief relating to the VCT shares issued in 1997-98.

The CGT due on 31 January 1998 can be reduced to take account of deferral relief as ‘front-end' income tax relief has been reflected in the income tax payments on account for 1997-98.

VCT deferral relief is abolished for shares issued after 5 April 2004.