What does paragraph 79 of Schedule 2 to the Income Tax Act 2007 do?

Paragraph 79 of Schedule 2 introduces a transitional rule that disapplies the section 301 definition of 'qualifying 90% subsidiary' for any shares or securities issued before 17 March 2004. This ensures pre-existing venture capital trust investments continue to be assessed under the earlier rules that were in force at the time of issue.

Which definition of qualifying 90% subsidiary applies to shares issued before 17 March 2004?

For shares or securities issued before 17 March 2004, the definition of qualifying 90% subsidiary that was in force at the time the shares were originally issued applies, rather than the current definition in section 301 of the Income Tax Act 2007. This protects older investments from retrospective changes to the qualification criteria.

Why is the qualifying 90% subsidiary definition important for venture capital trusts?

The qualifying 90% subsidiary definition determines whether shares or securities held by a venture capital trust form part of its qualifying holdings. Meeting this definition is essential for the trust to satisfy the conditions required to maintain its venture capital trust status and the associated tax reliefs under United Kingdom law.

How does the transitional rule in paragraph 79 work in practice?

If a venture capital trust holds shares acquired before 17 March 2004, such as shares issued in January 2003, the section 301 definition is not used when assessing the subsidiary relationship. Instead, the rules in effect at the time of issue govern the assessment. Had those shares been issued on or after 17 March 2004, section 301 would apply.

Income Tax Act 2007 Schedule 2 paragraph 79

Meaning of "qualifying 90% subsidiary"

Paragraph 79 of Schedule 2 provides a transitional rule disapplying the definition of "qualifying 90% subsidiary" in section 301 for shares or securities issued before 17 March 2004.

Section 301 sets out the meaning of "qualifying 90% subsidiary" for the purpose of determining whether shares or securities form part of a company's qualifying holdings under the venture capital trust rules.
This transitional provision disapplies section 301 where the shares or securities in question were issued before 17 March 2004.
For shares or securities issued before that date, the earlier rules that were in force at the time of issue continue to govern whether the subsidiary relationship qualifies.
This ensures that investments made under the previous legislative framework are not retrospectively affected by the updated qualifying 90% subsidiary definition.

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