In 1999, Oxford Technology VCT invested in Scancell Holdings when it was a start-up company. In December 2003, Oxford Technology 3 VCT invested £150,000 in Scancell and has since made subsequent ‘top up’ investments to support its growth.
Aim-listed oncology specialist Scancell has a vaccine for melanoma which is in clinical trials. In August 2013, OT3VCT exercised its right to purchase additional shares as part of a discounted rights issue, bringing the total invested by OT3VCT to £400,000.
Soaring share price
While this was less than 10% of the total capital raised by OT3VCT, because Scancell's share price had increased significantly, the investment resulted in a breach of the 15% Rule – the rule stipulating that a VCT must not hold more than 15% in any one company, as calculated by the last price at which the company’s shares were purchased.
The VCT status was withdrawn on 7 March 2014, the date from which no further tax advantages will apply.
For the company, this means it is no longer exempt from corporation tax on chargeable gains.
For investors in the company, the implications are as follows:
- any front-end income tax relief in shares issued within a period of 5 years prior to this notice will be withdrawn;
- any deferred gains come to charge;
- subsequent dividends from the company will not be exempt from income tax;
- any subsequent gains on disposal of shares in the company will not be exempt from CGT.
Oxford Technology 3 VCT intends to appeal the decision and has 30 days in which to do so. It is also writing to shareholders to keep them informed of further developments and set out the details surrounding the tax implications.
In a statement to the stock exchange, it said: "In the event that the appeal is not successful the directors of the company will need carefully to review the company's options and consider its future as a listed company which may lead to a cancellation of admission to the premium segment of the Official List of the United Kingdom Listing Authority and to trading on the main market for listed securities of the London Stock Exchange plc."
Association of Investment Companies director general Ian Sayers 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“This is the first time that HMRC has withdrawn the status of a VCT.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.”
