Tax & Accounting News

When Venture Capital Trusts merge

09/06/2010

The recent economic difficulties have led to a number of mergers and takeovers among Venture Capital Trusts (VCTs).

VCTs have traditionally been popular among certain investors for the generous tax breaks they offer. Any income, and usually any capital gain from an investment is tax-free, income tax relief of up to 30 per cent can be claimed on the money invested and, for investments made before April 6 2004, tax on any capital gains during the year of investment or the previous three, could be deferred.

When two VCTs merge, HMRC has confirmed that will have no effect on the company’s status, while in the case of a takeover, the tax breaks will also be maintained provided both companies meet HMRC’s criteria to qualify as a VCT before and after the merger.

In either case, the new company should provide guidance to its shareholders on the consequences of the merger or takeover, including on its tax position.

Any CGT deferral that has already been claimed should remain exempt, provided the shares were CGT-exempt in the first place. Anyone wishing to re-defer the gain can do so by switching the investment into an Enterprise Investment Scheme (EIS), which still enjoy that tax benefit.

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