VCM8123 - Venture Capital Schemes: funding limits for investee companies: lifetime limit on risk finance investments

The maximum amount of relevant investments a company and its subsidiaries may receive is 拢12 million, unless the company is a knowledge-intensive company, in which case the limit is 拢20 million.

The rules for the lifetime limit operate in a similar way to the annual limit in determining the relevant investments that are taken into account for the

purposes of this condition.

The relevant investments an issuing or relevant company has received include relevant investments that have been employed for the trade of a subsidiary of the issuing company (whether or not the investments were raised by the issuing company) and in any other company which used the money for a trade that was subsequently transferred to the issuing company.

The relevant investments received by a subsidiary which subsequently leaves the group still count toward a company바카라 사이트檚 funding limit except for relevant investments made after the subsidiary left the group.

Example 3

Company C is the holding company of just one subsidiary, Company E, which started trading on 1 July 2014. Company C sold its other subsidiary, company D, on 30 November 2014. All the companies are less than 7 years old, and their business activities were started from scratch after they were incorporated.

Company C wishes to raise money from EIS investors on 1 January 2016 to employ in company E바카라 사이트檚 qualifying activities. Company C is not a knowledge-intensive company and so the limit is 拢12 million.

Company C has raised risk finance investments as follows:

1 July 2010 拢2 million 바카라 사이트� for company C바카라 사이트檚 activities

1 December 2011 拢2 million 바카라 사이트� for company C바카라 사이트檚 activities

1 January 2013 拢2 million 바카라 사이트� for company D바카라 사이트檚 activities

1 April 2014 拢2 million 바카라 사이트� for company D바카라 사이트檚 activities

1 June 2015 拢2 million 바카라 사이트� for company E바카라 사이트檚 activities

The maximum amount of risk finance investments company C can raise in future is 拢2 million.

The relevant investments of subsidiaries and trades acquired by the issuing or relevant company or a subsidiary of the company after the investment is received also count towards the lifetime limit if:

  • the acquisition is made within 3 years of the investment (for EIS investments) ITA07/S173AB or 5 years of the investment (for VCT investments) ITA07/S280B(3B) and 292A and
  • the money raised by the investment is used wholly or in part for the business of the subsidiary or trade acquired after the investment was received.

The purpose of this rule is to stop companies exceeding the lifetime limit by using the money on a subsidiary company or trade that it acquires after raising the investment where, if it had acquired the subsidiary company or trade before raising the investment, the lifetime limit would have been breached. This would happen where the new company or trade has benefited from earlier relevant investments that, together with the relevant company바카라 사이트檚 relevant investments at the investment date, would breach the relevant company바카라 사이트檚 investment limit.

Example 4

Company F, which is not a knowledge-intensive company, plans to receive an EIS investment of 拢2 million on 31 January 2017, bringing its total relevant investments to 拢8 million. It intends to use the money to grow and develop company G, which it will acquire on 1 March 2017 using other, non-tax-advantaged funds. Company G is not a knowledge-intensive company and received relevant investments of 拢5 million in 2013. The effect of company F using the money for its new subsidiary, company G, would be that company F would breach its lifetime limit of 拢12 million and the 拢2m EIS investment would not be eligible for relief. There would be no impact on the 拢5m raised earlier by company G because the termination date of the shares would have passed by the time company G was acquired by company F.

If the EIS money is used for one of the companies or trades acquired after the relevant investment was made then all of the relevant investments received by the subsidiaries acquired since the relevant investment was made are taken into account in determining if the issuing company바카라 사이트檚 limit is breached.

If the money has been raised from a VCT then the investment will not be a qualifying holding and, depending on the circumstances, for example where the VCT knew how the money was to be used, the VCT could risk losing its status.

Example 5

The facts are the same as for example 4 except that after company F raised the 拢2 million, and before acquiring company G, company F used other funds to acquire a business from another company and the business is being carried out by one of company F바카라 사이트檚 other subsidiaries. The previous owner of the business had employed 拢5 million in the business, having raised the money from VCT investors.

The lifetime limit of company F is not breached when it acquires the business even though the relevant investments of the group are 拢13 million because company F does not intend to use the 拢2 million in the newly acquired business.

The breach of the lifetime limit occurs only when company F employs the 拢2 million in company G, by which time the total relevant investments of the group are 拢18 million.