SolvedVCM54110 | VCT: VCT approval: 70% qualifying holdings condition: disregard of disposals: example
From HM Revenue & Customs · Venture Capital Schemes Manual
Example of disposal of qualifying holding - no new qualifying holdings included in consideration received
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 10 April 2007 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 sold for £350,000 comprising £250,000 in cash and £100,000 in loan notes.
| - | Qualifying Holdings(QI) | Total Investments(TI) | QI/TI x 100% |
|---|---|---|---|
| Before disposal | £1.5m | £2.0 | 75% |
Disposal: 10 April 2007
Original cost: £200,000
Total Proceeds: £350,000
Proceeds comprise:
£250,000 in cash (monetary), and
£100,000 in loan notes (non-monetary)
After disposal
Before the application of S280A
£1.3m £2.15m 60%
Applying S280A(2)(a)
The VCT is treated as retaining 100% of the qualifying holding disposed of. It is therefore treated as retaining £200,000 (being the original cost) in addition to the actual qualifying holdings of £1.3m, making a total of £1.5m qualifying holdings.
It is also treated as retaining £200k for the purpose of its total investments, making total investments before the application of S280A(2)(b) of £2.35m.
Applying S280A(2)(b)
The VCT’s total investments are then treated as reduced by the monetary consideration received, £250,000. VCT’s total investments are therefore (£2.35M less £25O,OOO) £2.1m.
| - | Qualifying Holdings(QI) | Total Investments (TI) | QI/TI x 100% |
|---|---|---|---|
| After the application of S280A | £1.5m | £2.1m | 71% |
The calculation for the purpose of the 70% qualifying holdings condition will include the deemed retained holding, valued at £200,000, and the deemed reduction in the investments of £250,000 for 6 months following the date of the disposal of the investment.
These adjustments apply for the full 6 months whether or not the VCT invests or otherwise disposes of the consideration received in that period.