Income Tax Act 2007 section 809FZK

Venture capital funds

Section 809FZK establishes special calculation rules for venture capital funds, allowing investments and disposals in qualifying companies to be treated as occurring at specific times rather than when they actually take place, thereby simplifying compliance and more accurately reflecting the fund's average holding period.

• A venture capital fund is an investment scheme that, at inception, is reasonably expected to invest at least two-thirds of its total value in venture capital investments and to hold at least two-thirds of its total value for 40 months or more
• Subsequent investments by a venture capital fund in a company in which it holds a "relevant interest" (at least 5% or more than £1 million) are backdated to the time the relevant interest was first acquired, and partial disposals are not recognised until the fund has disposed of more than 80% of its peak investment in that company or the scheme director condition ceases to be met
• A venture capital investment must be in an unlisted trading company (or holding company of a trading group) that has traded for no more than seven years, with at least 75% of the investment in newly issued shares or convertible securities, used to support business growth or new product development
• The scheme director condition requires the fund to have the right to appoint a director of the investee company (or its controlling company) who holds enhanced governance rights at least equivalent to those a prudent arm's length investor of the same size would obtain