ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is adverse to some taxpayers and favourable to others in principle. But it is expected to have no practical effect as it is in line with current practice.
Change 60: VCT: excess over the maximum qualifying amount: section 287 and Schedule 2Part 8 (the maximum qualifying investment requirement)
This change provides that an investment in excess of the maximum qualifying investment is ignored in relation to later investments in the same company.
Paragraph 7 of Schedule 28B to ICTA prevents an issue of shares or securities (the relevant holding) from being a “qualifying holding” to the extent that the “maximum qualifying investment” is exceeded for the “relevant period” at the time of the issue. Paragraph 7(2) and (5) define “maximum qualifying investment” and the beginning of the “relevant period” as follows:
“the maximum qualifying investment for any period is exceeded to the extent that the aggregate amount of money raised in that period by the issue to the trust company during that period of shares in or securities of the relevant company exceeds £1 million.”
and:
“For the purposes of this paragraph the relevant period is the period beginning with whichever is the earlier of(a)the time 6 months before the issue of the relevant holding; and(b)the beginning of the year of assessment in which the issue of that holding took place.”
The following example illustrates how paragraph 7 operates in relation to issues of shares or securities by company A to a VCT in the amounts and on the dates shown.
The intention was that the cumulative amount raised (column Y in the table) should only include earlier amounts raised to the extent that those amounts had fallen within the final column. So the asterisked total in the final row should be £900,000 and all of the £500,000 raised on 31 December 2005 should fall within the final column. Practice has reflected that intention.
Section 287(3)(b) of this Act reflects the practice of not “double counting” an amount that represents an excess over the maximum qualifying investment within a relevant period.