VCM55150 | VCT: VCT qualifying holdings: employment of money raised

ITA07/S293

If a VCT's investment in a company is to be part of its qualifying holdings, two requirements regarding the employment of the money raised by the issue of the holding must be satisfied.

The first requirement is that the money raised by the issue has been employed wholly for the purpose of a trade carried on by a group company, or that the company intends that it shall be so employed.

The second requirement relates to the use of the money raised. All of the money raised must be employed for the purpose of the qualifying activity within two years of the ‘trading time’ (that is, the date of issue of the holding or, where the money is raised for use in preparing to trade, the date when that trade starts to be carried on).

If not all of the money has been so employed ITA07/S286(5) will apply to divide the holding into two.

When money is not to be regarded as being used for a qualifying activity

The money employed, or to be employed by the company is not to be regarded as being used for a qualifying activity if it is used to:

• acquire directly or indirectly: a 51% subsidiary company, a trade, intangible assets or goodwill employed for the purposes of the trade (see VCM8140). See also VCM54184 as regards the no business acquisition condition: if the VCT approvals condition at ITAS274(2) and S280B is breached in circumstances which do not result in the VCT having its approval withdrawn, S293 applies to treat the holding as non-qualifying

• acquire shares in another company; this does not prevent the company from using the money to acquire shares in a qualifying 90% subsidiary, providing that that subsidiary then goes on to use the funds for a qualifying business activity within two years of the ‘trading time’ referred to above.

Use of money in 90% subsidiaries of specified companies

The increased limits introduced by Finance Act 2026 apply for shares issues on or after 6 April 2026 by companies that are not specified companies. Where such a company has one or more 90% subsidiaries that are specified companies, the funds it raises may be used in those subsidiaries collectively only up to the specified company’s annual and lifetime limits.

This ensures that groups containing specified company subsidiaries can access the increased limits at the parent company level, while allowing only the amounts within the specified company limits to be employed within specified company subsidiaries.

Example

Company B is neither a specified company nor a knowledge-intensive company. It has not previously raised money from a VCT. Company B has one wholly owned subsidiary, Company C, which is a specified company.

On 1 May 2026, Company B raises £10 million by issuing shares to a VCT.

If Company B had itself been a specified company, it would have been subject to the £5 million annual limit. Accordingly, although Company B can raise the full £10 million under the increased limits, only £5 million of that amount may be employed in Company C. The remaining funds must be used outside the specified company subsidiary.