The UK’s tax authority has taken the landmark decision to strip permissions to operate as a Venture Capital Trust from two funds that had raised more than £11m from investors, with up to £300,000 in upfront income tax relief likely to be reclaimed.
HM Revenue and Customs has withdrawn the permissions of two funds operated by Oxford Technology Management, Oxford Technology VCT and Oxford Technology VCT 3, over a breach of a rule that limits investment in a single company to 15 per cent of total assets.
The first of the Oxford Technology VCTs first invested £125,000 in then start-up Scancell Holdings, which has developed a vaccine for melanoma which is in clinical trials, in 1999, and has made subsequent investments including participating in a discounted rights issue in August 2013.
While the total invested by the fund was less than 10 per cent of the fund (£491,000), rises in the share price of Aim-listed Scancell resulted in a breach of the 15% Rule.
Oxford Technology notified HMRC of the inadvertent breach in October 2013 and HMRC has decided that, effective from 7 March 2, it will strip permissions from the funds that have invested in the company.
This means investments will no longer benefit from 30 per cent up front tax relief and gains will no longer be exempt from capital gains tax. HMRC stated it will also reclaim ‘front-end’ tax relief paid out within the past five years, the minimum holding period to qualify for the relief.
This puts at risk up to £298,500 worth of income tax relief claimed on a top-up fundraising of £995,000 for the Oxford Technology 3 VCT between 2007 and 2010. In total through four funding rounds since 1997 the two funds raised £11.5m.
Oxford said it intends to appeal against this decision and has 30 days in which to do so.
Ian Sayers, director general of VCT trade body the Association of Investment Companies, said: “This is a very worrying time for investors in these two VCTs. We understand that both companies are going to appeal HMRC’s decision and so investors may want to speak to their financial advisers to understand the implications of these announcements.
“This is the first time that HMRC has withdrawn the status of a VCT. Although these VCTs are not members of the AIC, we will be producing a general guide on the implications of the loss of VCT status which will be available on our website shortly.”
This article has been updated since first publication to remove an incorrect reference to Oxford Capital, who have no connection with the Oxford Technology VCTs.
