Income Tax Act 2007

Loss of relief

266 Loss of relief if shares disposed of within 5 years

(1) This section applies, subject to section 267 (spouses or civil partners), if an individual—

(a) obtains VCT relief in respect of eligible shares in a VCT, and

(b) makes a disposal of those shares within 5 years of their issue to the individual.

(2) In the case of a disposal that is made otherwise than by way of a bargain made at arm’s length, any VCT relief obtained by reference to the shares which are disposed of is to be withdrawn.

(3) In the case of a disposal that is made by way of a bargain made at arm’s length, any VCT relief obtained by reference to the shares disposed of must—

(a) if it is greater than A, be reduced by A, and

(b) in any other case, be withdrawn.

(4) A is 30% of the amount or value of the consideration which the individual receives for the shares.

(5) The rules in subsections (6) and (7) are for determining which eligible shares of any class are treated as disposed of for the purposes of—

(a) this section, and

(b) section 267,

if a person disposes of some but not all of the eligible shares of that class which the person holds in a company.

(6) Shares acquired on an earlier day are treated as disposed of before shares acquired on a later day.

(7) Shares acquired on the same day are treated as disposed of in the following order—

(a) shares by reference to which VCT relief has not been obtained, and

(b) shares by reference to which VCT relief has been obtained.

267 Transfers of shares between spouses or civil partners

(1) Section 266 does not apply in the case of any disposal of shares made by an individual to the individual’s spouse or civil partner, if it is made at a time when they are living together.

(2) Subsection (3) applies if any eligible shares which—

(a) have been issued to any individual (“the transferor”), and

(b) are shares by reference to which any VCT relief has been obtained,

are transferred to the transferor’s spouse or civil partner (“the transferee”) by a disposal such as is mentioned in subsection (1).

(3) If this subsection applies, section 266 and subsection (2) have effect, in relation to any subsequent disposal or other event, as if—

(a) the transferee were the person who had subscribed for the shares,

(b) the shares had been issued to the transferee at the time when they were issued to the transferor,

(c) there had been, in relation to the transferred shares, such a reduction by way of VCT relief in the transferee’s liability to income tax as is equal to the actual reduction in respect of those shares of the transferor’s liability, and

(d) that deemed reduction were (despite the transfer) to be treated for the purposes of section 266 as an amount of VCT relief obtained by reference to the shares transferred.

(4) Any assessment for withdrawing or reducing VCT relief because of a disposal or other event falling within subsection (3) is to be made on the transferee.

268 Loss of relief if VCT approval withdrawn

(1) This section applies if—

(a) the approval of any company as a VCT is withdrawn, and

(b) the withdrawal of the approval is not one to which section 281(3) (VCT approval treated as never having been given) applies.

(2) Any person who, at the time when the withdrawal takes effect, is holding any shares issued by the company by reference to which VCT relief has been obtained is treated for the purposes of section 266 as having disposed of those shares—

(a) immediately before that time, and

(b) otherwise than by way of a bargain made at arm’s length.

269 Loss of relief which is subsequently found not to have been due

Any VCT relief obtained which is subsequently found not to have been due is to be withdrawn.

270 Assessment on withdrawal or reduction of relief

(1) An assessment for withdrawing or reducing VCT relief under any of sections 266 to 269 must be made for the tax year for which the relief was obtained.

(2) No assessment for withdrawing or reducing VCT relief obtained by reference to shares issued to any individual may be made because of any event occurring after the individual’s death.