Corporate Venturing

Deferral relief

Corporation tax on chargeable gains arising from the disposal of shares by an investing company may be deferred if

• CVS investment relief was attributable to the shares immediately before the disposal
• the shares have been held continuously by the investing company from the time they were issued until the disposal
• the gain is reinvested in shares in another company, which also meets the conditions for investment relief.

To defer a gain the investing company must have

• subscribed for further qualifying shares
  • on which at least some investment relief is obtained
  • in a company other than the one whose shares gave rise to the gain, or another company in the same group when either the gain arises or the new investment is made
  • at any time within four years, beginning one year before the gain to be deferred arose
• held those shares continuously from the date they were issued until the date the gain to be deferred arose (if later).

The gain is deferred until there is a 'chargeable event', that is, until the shares in the other company are disposed of, or an event occurs (such as, a receipt of value or certain share reorganisations), which causes any of the investment relief attributable to the shares to be withdrawn.

The same gain may be deferred more than once using deferral relief. If a gain is revived because the shares are sold, a subscription for other qualifying shares may be used to defer the gain until the newly acquired shares are themselves subject to a chargeable event.

The investing company must make a claim after receiving a compliance certificate relating to the second investment specifying, for each gain it wishes to defer, how much of the subscription for new shares is to be set against an equal amount of the gain. The gain is treated as though it had not arisen at the time of the event, to the extent that it is matched with an amount subscribed. It is, in effect, put into suspense until the shares whose subscriptions have been matched are the subject of a chargeable event. When this occurs, a gain equal to part or all of the deferred gain is treated as accruing to the company at the time of that chargeable event.

What happens if the qualifying shares are issued before the gain to be deferred arises?

If the qualifying shares are issued before the gain to be deferred arises, they must be held by the investing company when the gain arises and still have investment relief attributable to them. Any reduction in investment relief before the gain arises is not treated as a chargeable event when calculating the amount of the gain that can be deferred.

Does it matter if the investment relief on the shares is withdrawn as a consequence of the disposal?

It does not matter if the investment relief on the shares is withdrawn in full on account of the disposal which results in the gain to be deferred (for instance, because the shares have not been held for the qualification period).

Is deferral relief available for investments made before the CVS began?

No. Only shares issued on or after 1 April 2000 can qualify for reliefs under the CVS.

Are gains on shares to which investment relief is attributable taxable?

Yes. They are taxable in the normal way.

How does an investing company claim deferral relief?

The company may make its claim either in its company tax return for the relevant accounting period, or by way of an amendment to that return, if that is possible. Otherwise it may make a claim under the rules provided by Schedule 1A TMA 1970, as provided for by Part VII of Schedule 18 of the 1998 Finance Act. Any amount subscribed for the further shares, which has not already been set against a chargeable gain, can be set against that amount of the original gain. The total claimed cannot exceed the amount of the original gain.

Can deferral relief be claimed provisionally pending subscription for qualifying shares or pending receipt of a compliance certificate in respect of the shares?

No. There is no provisional claim procedure. A claim can only be submitted once the investing company has made the investment and received a compliance certificate in respect of that investment.