VCM55080 - VCT: VCT qualifying holdings: proportion of eligible shares (10% minimum equity) requirement
ITA07/S289 {#IDAFRCEB}
A holding company cannot be part of the VCT’s qualifying holdings at any time unless eligible shares account for at least 10% of its value at that time.
The value of shares and securities for this purpose is taken as their value at the date when the holding was first acquired or treated as acquired, or, where it has since been added to (except where the addition takes the form of a bonus issue of shares), the value at the date when the addition is made. However, in no circumstances can the value of either shares or securities be taken as less than the amount of the consideration given.
Example
A VCT is issued with 20,000 ordinary shares in a company, for which it pays £80,000, and at the same time it makes the company a loan of £500,000. The value of the shares is taken as their cost, so the 10% requirement is easily met.
Over the next two years the company makes heavy losses, leading to a collapse in its value. But no revaluation of the shares is required.
As the company now urgently needs a fresh injection of capital the VCT makes an additional loan of £200,000. This necessitates a revaluation, but the value of both shares and loans is pegged at cost, so the shares account for £80,000 out of a total of £780,000 and the 10% requirement is still satisfied. An additional loan of £250,000, however, would have breached the rule, with the result that the holding would have ceased to qualify.
This requirement did not apply for investments made before 6 April 2018, where the money used for the investment was originally raised before 2 July 1997 (see VCM55020).