Income Tax Act 2007 section 299A

The no disqualifying arrangements requirement

Section 299A prevents VCT qualifying holdings from being issued in connection with arrangements whose purpose is to channel investment funds back to the parties behind those arrangements, or to dress up an existing business as a new qualifying activity in order to obtain tax reliefs.

• Shares forming part of a VCT's qualifying holdings must not have been issued, nor the money raised employed, in connection with disqualifying arrangements
• Arrangements are disqualifying where a main purpose is to ensure a qualifying activity is carried on and that shares qualify for VCT status or other tax reliefs, and either the bulk of the money raised ends up being paid to parties to the arrangements, or the activity would otherwise have been carried on by those parties as part of an existing business
• The definition of arrangements is deliberately broad, covering any scheme, agreement, understanding, transaction or series of transactions, whether or not legally enforceable, and it does not matter whether the investee company itself is a party to them
• Relevant tax relief covers a wide range of share-based reliefs including EIS, SEIS, SI, share loss relief, and capital gains tax deferral and reinvestment reliefs under TCGA 1992