LAM03600 - Calculation of ‘I’ Income and chargeable gains: Chargeable gains from venture capital limited partnerships (VCIPs) TCGA92/SCH7AD: Overview
The practical difficulties in calculating chargeable gains arising to life insurance companies from their investments in venture capital limited partnerships were recognised by the Myner’s Report (2001). Changes in ownership proportions, difficulties in valuation and delays in receiving information and deficiencies in information were all contributory factors.
Following the recommendations in this review, TCGA92/SCH7AD (for periods of account beginning on or after 1 January 2002) was enacted to simplify the chargeable gains rules for life companies investing in venture capital limited partnerships. If certain conditions are met, the interest in the partnership can effectively be treated as a single asset. These rules apply where the assets are held by an insurance company for the purposes of its long term business.
Instead of treating the insurance company as holding a proportionate share of each of the shares and securities of the partnership the insurance company must treat its interest in the ‘relevant assets’ of the partnership as a single asset, acquired when it became a partner TCGA92/SCH7AD/PARA3. The relevant assets of the partnership are the shares and securities, other than qualifying corporate bonds (QCBs), held by the partnership. QCBs are excluded because they would not be chargeable assets if the normal rules applied.
The qualifying conditions for TCGA92/SCH7AD are written widely so it should apply to most life companies’ investments in venture capital limited partnerships.
Schedule 7AD does not impose a liability on the partnership i.e. the liability to capital gains tax on the asset remains that of the partner, preserving the fiscal transparency of the partnership.
If these conditions are not met then the partnership chargeable gains rules will continue to apply with life companies being taxable on their share of chargeable gains (or losses) on their share of the underlying partnership assets.
The following sections cover: