VCTs—qualifying holdings: qualifying trades
VCTs—qualifying holdings: qualifying trades

The following Tax practice note provides comprehensive and up to date legal information covering:

  • VCTs—qualifying holdings: qualifying trades
  • Meaning of qualifying trade
  • Trade and commerciality
  • Meaning of trade in this context
  • Commerciality of the trade
  • Meaning of substantial
  • Meaning of excluded activities

Like the enterprise investment scheme (EIS), the venture capital trust (VCT) regime is designed to encourage investment in smaller, higher-risk trading companies. A VCT is a company (not a trust), approved by HMRC, whose shares are admitted to trading whose shares are admitted to trading in such a way that they meet the listing condition explained in Practice Note: VCTs—VCT conditions for HMRC approval—The listing condition. Individuals can benefit from a range of tax reliefs, and spread their investment risk, by subscribing for (or buying) shares in a VCT, which, in turn, subscribes for newly issued shares or debt in unquoted companies (companies listed on AIM or PLUS markets (other than the PLUS-listed market) are unquoted for these purposes).

For further details of the tax reliefs available to individual investors in VCTs and the corporation tax reliefs available to VCTs themselves, see Practice Note: VCTs—introduction, tax reliefs and returns.

The VCT regime is prescriptive and sets out a number of requirements that must be met before these tax reliefs are available, including in relation to:

  1. the VCT itself, which must be HMRC approved, see Practice Note: VCTs—VCT conditions for HMRC approval, and

  2. the VCT's qualifying holdings in investee companies, see Practice Notes:

    1. VCTs—qualifying holdings: conditions relating to shares or securities, funds raised and arrangements, and

    2. VCTs—qualifying holdings: investee companies

A pervasive requirement is that the investee

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