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VCTs: CGT deferral relief: liquidation vs sale

Sophisticated and complex high-risk tax-sensitive investments in small companies: handle with care
yorkshirelad1
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VCTs: CGT deferral relief: liquidation vs sale

#390384

Postby yorkshirelad1 » February 26th, 2021, 8:13 pm

(Not sure if this should in "Taxes" or "VCT"; it's a tax issue about VCT, but probably unique to VCTs....: if mods want to move it, that's fine with me!)

If you hold a VCT that liquidates, the CGT that was not paid (deferral relief) when you bought the VCT may become chargeable.

If you sell a VCT, there is no CGT payable, provided you have held the VCT the minimum number of years to qualify (including the deferred CGT?).

That would suggest that it would be better to try and sell a VCT that you think may be about to liquidate (if there is CGT relief involved).

Am I correct on the liquidation vs sale aspect re deferred CGT for a VCT?

TIA

UncleEbenezer
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Re: VCTs: CGT deferral relief: liquidation vs sale

#390394

Postby UncleEbenezer » February 26th, 2021, 8:50 pm

yorkshirelad1 wrote:If you sell a VCT, there is no CGT payable, provided you have held the VCT the minimum number of years to qualify (including the deferred CGT?).

TIA

My underlining, but where does that come from? I don't know, but I'd be mildly surprised if it's true.

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Re: VCTs: CGT deferral relief: liquidation vs sale

#390401

Postby Kidman » February 26th, 2021, 9:34 pm

yorkshirelad1 wrote:Am I correct on the liquidation vs sale aspect re deferred CGT for a VCT?

I believe the answer is 'no'.
VCT shares issued before 6 April 2004 carry CGT deferral relief until various events and one is a disposal. At that time the original CGT liability is crystallised. One can transfer to a spouse but if they sell then they have the CGT liability.

In other words the CGT liability cannot be extinguished. The only advantage of selling is that one can sell in parts over different tax years so that the amount of gain crsyatallised may fit in with other gains and losses relative to one's annual CGT allowance.

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Re: VCTs: CGT deferral relief: liquidation vs sale

#390671

Postby barchid » February 27th, 2021, 4:47 pm

Kidman
What you say is exactly what my accountant instructed me to do, some years ago so I am sure both you, & he, are/were correct.
A similar ability to defer CGT still exists with EIS co's except there you can offset the balance of your loss againt 70% of income tax which is normally slightly more than ths CGT liability is.

yorkshirelad1
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Re: VCTs: CGT deferral relief: liquidation vs sale

#390991

Postby yorkshirelad1 » February 28th, 2021, 10:29 pm

Kidman wrote:
yorkshirelad1 wrote:Am I correct on the liquidation vs sale aspect re deferred CGT for a VCT?

I believe the answer is 'no'.
VCT shares issued before 6 April 2004 carry CGT deferral relief until various events and one is a disposal. At that time the original CGT liability is crystallised. One can transfer to a spouse but if they sell then they have the CGT liability.

In other words the CGT liability cannot be extinguished. The only advantage of selling is that one can sell in parts over different tax years so that the amount of gain crsyatallised may fit in with other gains and losses relative to one's annual CGT allowance.


Thank you for clarifying (and blowing some of the mist from my foggy thoughts). It is after all CGT deferral so I shouldn't be surprised.

If I may, I might mention that CGT deferred liability can be extinguised in the case of death of the holder and the VCT shares are bequeathed. I am fortunate that my mother had two VCT which I inherited, but the inbuilt deferred CGT was extinguished on her death and I hold the 2 VCTs without the matter of the deferred CGT to deal with (unexpected benefit), especially as one of them (Chrysalis) has decided to liquidate. See e.g.
https://greshamhouse.com/wp-content/uploads/2020/09/Baronsmead-Bequeathing-shares.pdf

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Re: VCTs: CGT deferral relief: liquidation vs sale

#391203

Postby londoninvestor » March 1st, 2021, 3:25 pm

yorkshirelad1 wrote:If you sell a VCT, there is no CGT payable, provided you have held the VCT the minimum number of years to qualify


It's academic if your shares are venerable enough that they allowed you to defer CGT – but sales of VCT shares are in fact exempt from CGT regardless of how long you've held them. (Unlike the income tax relief on newly issued shares, which does require you to hold for 5 years.)


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