Income and Corporation Taxes Act 1988

842 Investment trusts. U.K.

M1 (1) In the [F1 Corporation Tax Acts]“investment trust” means, as respects any accounting period, a company which is not a close company and which is approved for the purposes of this section for that accounting period by the Board, and the Board shall not approve any company unless it is shown to their satisfaction—

[F2 (aa) that the company is resident in the United Kingdom; and]

(a) that the company’s income [F3 (as determined in accordance with subsection (1AB) below)][F4 is derived wholly or mainly from shares or securities][F5 (as so determined)]; and

(b) subject to subsection (2) below, that no holding in a company, other than an investment trust or a company which would qualify as an investment trust but for paragraph (c) below, represents more than 15 per cent. by value of the investing company’s investments; and

[F6 (c) that the shares making up the company’s ordinary share capital (or, if there are such shares of more than one class, those of each class) are [F7 included in the official UK list]; and]

(d) that the distribution as dividend of surpluses arising from the realisation of investments is prohibited by the company’s memorandum or articles of association; and

(e) that the company does not retain in respect of any accounting period [F8 an amount which is greater than] 15 per cent. of [F9 the income it derives from shares or securities][F10 (determined in accordance with subsection (1AB) below)].

[F11 (1AA) F12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

[F13 (1AB) In determining for the purposes of paragraph (a) or (e) of subsection (1) above (and accordingly of subsection (2A)(b) below)—

(a) the amount of a company’s income, or

(b) the amount of income which a company derives from shares or securities,

the amounts to be brought into account under [F14 Part 5 of CTA 2009] in respect of the company’s loan relationships shall be determined without reference to any debtor relationships of the company.]

[F15 (1AC) In determining the amount of a company’s income for the purposes of subsection (1)(a) above, no account shall be taken of any amount that [F16 is charged to corporation tax under section 1229(3)(b) of CTA 2009 (claw back of relief for expenses of management)].]

[F17 (1A) For the purposes of paragraph (b) of subsection (1) above and the other provisions of this section having effect in relation to that paragraph—

(a) holdings in companies which are members of a group (whether or not including the investing company) and are not excluded from that paragraph shall be treated as holdings in a single company; and

(b) where the investing company is a member of a group, money owed to it by another member of the group shall be treated as a security of the latter held by the investing company and accordingly as, or as part of, the holding of the investing company in the company owing the money;

and for the purposes of this subsection “group” means a company and all companies which are its 51 per cent. subsidiaries]

(2) Subsection (1)(b) above shall not apply—

(a) to a holding in a company acquired before 6th April 1965 which on that date represented not more than 25 per cent. by value of the investing company’s investments; or

(b) to a holding in a company which, when it was acquired, represented not more than 15 per cent. by value of the investing company’s investments;

so long as no addition is made to the holding.

[F18 (2A) Subsection (1)(e) above shall not apply as regards an accounting period if—

(a) the company is required to retain income in respect of the period by virtue of a restriction imposed by law, and

(b) the amount of income the company is so required to retain in respect of the period exceeds an amount equal to 15 per cent. of the income the company derives from shares and securities.

(2B) Subsection (2A) above shall not apply where—

(a) the amount of income the company retains in respect of the accounting period exceeds the amount of income it is required by virtue of a restriction imposed by law to retain in respect of the period, and

(b) the amount of the excess or, where the company distributes income in respect of the period, that amount together with the amount of income which the company so distributes is at least £10,000 or, where the period is less than 12 months, a proportionately reduced amount.

(2C) Paragraph (e) of subsection (1) above shall not apply as regards an accounting period if the amount which the company would be required to distribute in order to fall within that paragraph is less than £10,000 or, where the period is less than 12 months, a proportionately reduced amount.]

[F19 (2D) For the purpose of determining whether a company may be approved for the purposes of this section for an accounting period, the excess of any relevant credits arising in that period over any relevant debits so arising is treated for the purposes of this section as income derived from shares or securities.

(2E) In subsection (2D) “relevant credits” and “relevant debits”, in relation to an accounting period, means credits and debits which are brought into account in respect of that period by virtue of section 574 of CTA 2009 (non-trading credits and debits to be brought into account under Part 5 of that Act).]

(3) For the purposes of subsection (2) above—

(a) “holding” means the shares or securities (whether of one class or more than one class) held in any one company; and

(b) an addition is made to a holding whenever the investing company acquires shares or securities of that one company, otherwise than by being allotted shares or securities without becoming liable to give any consideration, and if an addition is made to a holding that holding is acquired when the addition or latest addition is made to the holding; and

(c) where in connection with a scheme of reconstruction F20 . . . , a company issues shares or securities to persons holding shares or securities in a second company in respect of and in proportion to (or as nearly as may be in proportion to) their holdings in the second company, without those persons becoming liable to give any consideration, a holding of the shares or securities in the second company and a corresponding holding of the shares or securities so issued shall be regarded as the same holding.

[F21 (3A) References in this section to income do not include income treated as arising under [F22 regulation 18(1) of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001)].]

(4) In this section “company” and “shares” shall be construed in accordance with sections [F23 99 and 288 of [F24 the 1992 Act]][F25 and “scheme of reconstruction” has the same meaning as in section 136 of that Act].

Textual Amendments

F1 Words in s. 842(1) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 228 (with Sch. 2)

F2 1988(F) s.117(1)(a)for accounting periods ending after 5th April 1988.

F3 Words in s. 842(1)(a) inserted (with effect in accordance with s. 82(2) of the amending Act) by Finance Act 2002 (c. 23), Sch. 25 para. 56(2)(a)

F4 Words in s. 842(1)(a) restored (as a result of the repeal of amending provision FA 1996 (c. 8), Sch. 30 para. 2(2) with effect in accordance with s. 145(2) of the repealing Act) by virtue of Finance Act 2006 (c. 25), s. 143, Sch. 26 Pt. 4

F5 Words in s. 842(1)(a) inserted (with effect in accordance with s. 82(2) of the amending Act) by Finance Act 2002 (c. 23), Sch. 25 para. 56(2)(b)

F6 1988(F) s.117(1)(b)for accounting periods ending after 5th April 1988.Previously

“that the shares or securities of the company are quoted on the Stock Exchange and”.

F7 Words in s. 842(1)(c) substituted (19.7.2007) by Finance Act 2007 (c. 11), Sch. 26 para. 7(9)

F8 Words in s. 842(1)(e) substituted (with effect in accordance with s. 82(2) of the amending Act) by Finance Act 2002 (c. 23), Sch. 25 para. 56(3)(a)

F9 Words in s. 842(1)(e) restored (as a result of the repeal of amending provision FA 1996 (c. 8), Sch. 30 para. 2(2) with effect in accordance with s. 145(2) of the repealing Act) by virtue of Finance Act 2006 (c. 25), s. 143, Sch. 26 Pt. 4

F10 Words in s. 842(1)(e) inserted (with effect in accordance with s. 82(2) of the amending Act) by Finance Act 2002 (c. 23), Sch. 25 para. 56(3)(b)

F11 S. 842(1AA) inserted (with effect in accordance with Sch. 30 para. 3 of the amending Act) by Finance Act 1996 (c. 8), Sch. 30 para. 2(3)

F12 S. 842(1AA) repealed (with effect in accordance with s. 145(2) of the repealing Act) by Finance Act 2006 (c. 25), s. 143(c), Sch. 26 Pt. 4

F13 S. 842(1AB) inserted (with effect in accordance with s. 82(2) of the amending Act) by Finance Act 2002 (c. 23), Sch. 25 para. 56(4)

F14 Words in s. 842(1AB) substituted (1.4.2009 with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), Sch. 1 para. 277(2) (with Sch. 2 Pts. 1, 2)

F15 S. 842(1AC) inserted (22.7.2004) by Finance Act 2004 (c. 12), s. 45(4)

F16 Words in s. 842(1AC) substituted (1.4.2009 with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), Sch. 1 para. 277(3) (with Sch. 2 Pts. 1, 2)

F17 1988(F) s.117(1)(c)for accounting periods ending after 5th April 1988.

F18 1990 s.55in relation to accounting periods ending on or after 26July 1990.

F19 S. 842(2D)(2E) inserted (1.4.2009 with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), Sch. 1 para. 277(4) (with Sch. 2 Pts. 1, 2)

F20 Words in s. 842(3)(c) repealed (with effect in accordance with Sch. 9 paras. 7, 8 of the repealing Act) by Finance Act 2002 (c. 23), Sch. 40 Pt. 3(2), Note

F21 S. 842(3A) inserted (with effect in accordance with s. 57(7) of the amending Act) by Finance Act 2007 (c. 11), s. 57(3)

F22 Words in s. 842(3A) substituted (1.12.2009 with effect in accordance with reg. 1(2) of the amending S.I.) by The Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001), regs. 1(1), 126(6) (with Sch. 1)

F23 Words in s. 842(4) substituted (with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 10 para. 14(55) (with ss. 60, 101(1), 171, 201(3))

F24 Words in s. 842(4) substituted (retrospectively) by Finance Act 1994 (c. 9), Sch. 17 para. 8

F25 Words in s. 842(4) added (with effect in accordance with Sch. 9 paras. 7, 8(4) of the amending Act) by Finance Act 2002 (c. 23), Sch. 9 para. 4(7)

Modifications etc. (not altering text)

C1 S. 842(1A)(a) excluded (27.7.1999) by Commonwealth Development Corporation Act 1999 (c. 20), Sch. 2 para. 12(2)

Marginal Citations

M1 Source—1970 s.359; 1973 s.54; 1979(C) Sch.7.