VCM93030 - CVS: deferral relief: how is relief given?

FA00/SCH15/PARA76

Deferral relief is allowed on a claim by setting off some or all of the amount subscribed by the investing company for the qualifying shares against one or more eligible gains. The investing company makes a claim that specifies, in respect of each gain, how much of the expenditure incurred on the qualifying shares is to be set against an equal amount of the gain. Where a gain has had an amount of expenditure set against it, an equal amount of the gain is treated as not having arisen when it did. This amount is, in effect, put into suspense until a chargeable event occurs in relation to the shares. When such an event occurs (see VCM93040), a gain equal to part or all of the deferred gain is revived.

‘The qualifying shares’ means the shares comprised in the qualifying investment together with any corresponding bonus shares issued to the investing company in respect of them. ‘Corresponding bonus shares’ are bonus shares (that is, shares issued for no consideration) that are issued in respect of the qualifying shares, and are in the same company, of the same class and carry the same rights as those shares.

There is no requirement that the proceeds of a disposal giving rise to a gain are directly applied to subscribe for the new shares. Nor is there any requirement that an amount equal to the whole of the disposal proceeds is invested in the new shares.

The investing company can specify an amount of set-off in the claim as long as this does not exceed the amount of:

  1. the unused qualifying expenditure on qualifying shares, and
  2. that part of the gain which is to be deferred that is unmatched.

An investing company’s qualifying expenditure on qualifying shares is the amount subscribed for the shares comprising the qualifying investment and that expenditure is unused to the extent that it has not already had gains set against it.

A gain is unmatched to the extent that qualifying expenditure has not already been set against it on a claim to CVS deferral relief.

Example

Company B carries out the following transactions:

  • shares in company C, to which CVS investment relief is attributable are disposed of on 1 May 2002 giving rise to a chargeable gain of £90,000,
  • shares in company D are acquired on issue for £60,000 on 1 September 2002, and company B obtains CVS investment relief for the investment,
  • shares in company E are acquired on issue for £40,000 on 1 December 2002, and company B obtains CVS investment relief for the investment.

The company can claim up to a total amount of £90,000 deferral relief in respect of this gain by setting a corresponding amount of expenditure on the two share issues against it. The company does not have to defer the maximum possible gain against the expenditure on the earlier acquisition in September in priority to the later one in December.