The Finance Act 2016 introduced rules that prescribe the non-qualifying holdings that a venture capital trust may have. These rules took effect from 6 April 2016 but don’t apply to non-qualifying investments made before that date. These investments can continue to be held by a venture capital trust.

Under the proposals would amend elements of Venture Capital Trust (Exchange of Shares and Securities) Regulations 2002.

In particular, clarifications are made to better define when shares and securities held by venture capital trusts are non-qualifying, such as when exchanges are made for genuine commercial reasons rather than for tax avoidance purposes.

 Alongside that, shares and securities are non-qualifying when the trust company receives, in respect of the old shares or old securities, new shares or new securities, with or without other consideration.

Without these amended regulations, venture capital trusts will continue to have to rely upon HMRC exercising its discretion to avoid immediate loss of approval when an old non-qualifying investment is exchanged for a new non-qualifying investment.

The consultation, which runs until 2 January 2018, seeks comments from stakeholders on the draft statutory instrument. In particular, the HMRC is seeking a better understanding of the impact of these regulations on share re-organisation or company re-structuring and time limits within which it is reasonable to expect a venture capital trust to liquidate holdings of new non-qualifying investments obtained in exchange transactions.

The consultation can be found here.

Report by Calum Fuller