What does section 65 of the Income Tax Act 2007 provide for venture capital trusts?

Section 65 provides transitional rules for determining whether a venture capital trust breaches the 15% holding limit. Where a VCT held investments in a company before 6 April 2007 and subsequently adds to that holding, the old ICTA rules continue to apply rather than section 278 of ITA 2007.

When do the old ICTA rules stop applying to a VCT's holding under section 65?

The old ICTA rules under section 842AA(11)(c) and sections 842(3) and (4) continue to apply for as long as the VCT holds any investments in the relevant company. Once the VCT completely disposes of all its investments in that company, the transitional rule falls away and ceases to have effect.

How does section 65 modify the treatment of investments issued before 17 April 2002?

For investments issued before 17 April 2002 not covered by the main transitional rule, section 278(5) of ITA 2007 applies with two modifications: the word 'amalgamation' is added alongside 'reconstruction', and the definition wording at the end of section 278(5) is removed to reflect the original legislative intent.

How is the 15% holding condition assessed for a VCT that held shares before 6 April 2007 and acquires more afterwards?

If a VCT held investments in a company before 6 April 2007 and acquires additional shares after that date, the 15% holding condition is assessed under the old ICTA provisions rather than section 278 of ITA 2007. This ensures continuity of treatment until the VCT fully exits its position in that company.

Income Tax Act 2007 section 65

Conditions relating to value of investments

Section 65 provides transitional rules for determining whether a venture capital trust breaches the 15% holding limit when it held investments in a company before 6 April 2007 and subsequently adds to that holding.

Where a VCT (company A) held investments in another company (company B) before 6 April 2007 and adds to that holding on or after that date, the question of whether the 15% holding condition is met is determined under the old ICTA rules rather than under section 278 of ITA 2007.
The old ICTA rules — specifically section 842AA(11)(c) and sections 842(3) and (4) — continue to apply until company A completely ceases to hold investments in company B.
For investments issued before 17 April 2002 that do not fall within the above transitional rule, section 278(5) of ITA 2007 applies but with a modification that extends the reference to "reconstruction" to also cover "amalgamation".
A further modification for those pre-17 April 2002 investments removes the definition wording at the end of section 278(5), reflecting the broader scope of the original legislation at that time.

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