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VCT (Exchange of Shares and Securities) Regulations – consultation ending 2 January 2018

By Philip Hare
4 December 2017

On 1 December, HMRC published draft amendments to the VCT (Exchange of Shares and Securities) Regulations.  Power to amend the Exchange Regulations was given in the Finance Act enacted in November.

The purpose of the amendments is to bring transactions in non-qualifying holdings within the Exchange Regulations; otherwise a reorganisation of a non-qualifying holding could cause a VCT to be regarded as making a non-qualifying investment, thus breaching the conditions of section 274 ITA 2007.  Since April 2016, a number of VCTs have had to seek dispensations from HMRC regarding transactions in non-qualifying holdings.

Non-qualifying holdings can arise from previous investments becoming non-qualifying, or investments being taken over by a non-qualifying company, or because VCTs were permitted to make certain non-qualifying investments before the rules changed in November 2015.

HMRC had previously indicated that the Regulations would not be available until next year, and the opportunity to comment on the draft is welcome.  There is only a short period of consultation on the draft changes, with responses sought by 2 January 2018.  Responses should be sent to

In outline it is proposed that where there is a reorganisation or exchange of a non-qualifying holding, the VCT has a period of 6 or 9 months to dispose of the resulting holding.  The industry should consider what would be an appropriate timescale, or indeed if there should be a limit at all.

Our initial view is that this is a very short period, given the illiquidity of VCT investments.

We also consider that the Regulations should deal with short term loans (which are not securities).

It would be helpful too if the opportunity were to be taken to update the Regulations generally (they still refer to the old Income and Corporation Taxes Act 1988, rather than Income Tax Act 2007) and do not properly take into account the changes to the VCT rules in the 2015 and 2016 Finance Acts.

The draft Regulations be found at

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