Income Tax Act 2007 section 286ZA

The risk-to-capital requirement

Section 286ZA sets out the risk-to-capital condition that must be met for a Venture Capital Trust (VCT) investment to qualify for tax relief, ensuring that the investment represents a genuine risk rather than a capital-preservation arrangement.

• The investee company must have genuine objectives to grow and develop its trade over the long term
• There must be a significant risk that the VCT will lose more capital than it receives back as net investment return (including income, capital growth, fees and all other payments)
• HMRC may consider a wide range of factors including the company's growth plans, income sources, asset base, subcontracting arrangements, ownership structure and how the investment opportunity is marketed
• Where the investee company is a parent company, the test applies by reference to the combined activities and characteristics of the whole group

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