Chapter 4: Investment trusts
Overview
This Chapter sets out the meaning of “investment trust” for the purposes of the Corporation Tax Acts.
Section 1158: Meaning of “investment trust”
3297.This section explains that an investment trust is a company that is not a close company and is approved by the Commissioners for HMRC as an investment trust. It is based on section 842(1) of ICTA.
3298.Paragraph (b) makes it explicit that the requirement that the company is not a close company relates to the whole of the accounting period for which approval is sought.
Section 1159: Conditions for approval
3299.This section sets out conditions A to F which a company must meet for an accounting period in order for it to be approved by the Commissioners for HMRC. It is based on section 842(1) of ICTA.
3300.Conditions A, B and E make it clear that the conditions concerned relate to the whole of the accounting period for which approval is sought. This is implicit in section 842(1) of ICTA. Similarly, the reference in condition C to the income of the accounting period aims to state more clearly what is implied by the reference to “the company’s income” in section 842(1)(a).
Section 1160: Calculation of income
3301.This section provides additional information on conditions C and D. It is based on section 842(1AB), (1AC), (2D), (2E) and (3A) of ICTA.
3302.Some references to income in section 842 of ICTA, for example references to income derived from shares or securities, are in a context which implies that the term “income” is to be interpreted in the framework of tax language and principles. References to income in the context of the retention of income in section 842(2A) and (2B), on the other hand, do not appear to invoke the tax-based meaning of income.
3303.Section 842(1AB) of ICTA, on which subsection (2) is based, makes provision for determining amounts of “income” for the purposes of subsections (1)(a) and (e) of that section (and accordingly of subsection (2A)(b)). The requirements in section 842(1)(a) and (e) are conditions C and D in section 1159.
3304.In contrast section 842(2D) and (3A) of ICTA are expressed to apply to section 842 as a whole. But it appears that those subsections also presuppose a tax-based measure of income and that their application is accordingly limited to the purposes for which section 842(1AB) applies.
3305.Therefore subsection (1) provides that subsections (3) and (4)of this section, based on section 842(2D) and (2E) and section 842(3A) respectively, as well as subsection (2), apply in determining what is to be included as the amount of the company’s income or the amount of income which a company derives from shares or securities for the purposes of conditions C and D (and accordingly of section 1161(2)(a)).
3306.Subsection (5) is concerned specifically with what is to be included as income of the company for the purpose of condition C.
Section 1161: The income retention condition: exceptions
3307.This section qualifies the application of condition D. It is based on section 842(2A), (2B) and (2C) of ICTA.
Section 1162: The 15% holding limit: exceptions
3308.This section qualifies the application of condition E. It is based on section 842(1), (2) and (3) of ICTA.
3309.A well-known HMRC practice with regard to the disposal of shares or securities from a holding is legislated for in subsections (4) and (5). See Change 63in Annex 1.
Section 1163: Basic meaning of “holding in a company”
3310.This section explains references to “holding in a company”for the purposes of condition E. It is based on section 842(3) of ICTA.
3311.Subsection (2) explains the reference to a holding being “enlarged” in section 1162.
Section 1164: More about the meaning of “holding in a company”
3312.This section gives more information about how to interpret a holding in a company for the purposes of condition E. It is based on section 842(1A), (3) and (4) of ICTA.
3313.Subsections (1) and (2) deal with certain cases involving a scheme of reconstruction. The newly issued shares or securities in the first company are treated under subsection (2) as forming part of the existing holding of shares or securities in the second company. Since the shares or securities are issued for no consideration there is no enlargement of the holding as defined in section 1163(2).
Section 1165: Other interpretation
3314.This section sets out the meaning of company, shares and scheme of reconstruction in this Chapter. It is based on section 842(4) of ICTA.
3315.Under subsection (1) “company” has the meaning given by section 1121, based on section 832(1) of ICTA, and references to company in this Chapter are read in accordance with section 99 of TCGA. In section 842(4) of ICTA the definition of company in section 288 of TCGA is applied in addition to section 99 of that Act. The only difference is that section 1121 omits a local authority and alocal authority association from the definition of company and this can have no relevance to an investment trust.
