Corporation Tax Act 2010

Chapter 4 U.K. Investment trusts

1158 Meaning of “investment trust” U.K.

In the Corporation Tax Acts “investment trust”, with respect to an accounting period, means a company which—

(a) is approved for the purposes of this Chapter for that period by the Commissioners for Her Majesty's Revenue and Customs, and

(b) is not a close company at any time in that period.

1159 Conditions for approval U.K.

(1) The Commissioners for Her Majesty's Revenue and Customs must not approve a company under section 1158 for an accounting period unless it is shown to their satisfaction that each of conditions A to F is met.

• Condition A

  The company must be UK resident throughout the accounting period.

• Condition B

  The shares making up the company's ordinary share capital (or if they are of more than one class, those of each class) must be included in the official UK list throughout the accounting period.

• Condition C

  The company's income of the accounting period must be derived wholly or mainly from shares or securities.

• Condition D

  The company must not retain in respect of the accounting period an amount which is greater than 15% of the income it derives from shares or securities (but see section 1161).

• Condition E

  The company must not at any time in the accounting period have a holding in a company that represents more than 15% by value of the investing company's investments (but see section 1162).

• Condition F

  The company's memorandum or articles of association must prohibit the distribution as dividend of surpluses arising from the realisation of investments.

(2) The conditions lettered A to F in subsection (1) are referred to by those letters in this Chapter.

1160 Calculation of income U.K.

(1) Subsections (2) to (4) apply in determining, for the purposes of condition C or D (and accordingly of section 1161(2)(a)), with respect to any accounting period of a company—

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

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

(2) The amounts to be brought into account under Part 5 of CTA 2009 in respect of the company's loan relationships are to be determined without reference to any debtor relationships of the company.

(3) The excess of—

(a) any credits brought into account in respect of the accounting period by virtue of section 574 of CTA 2009 (non-trading credits in respect of derivative contracts), over

(b) any debits brought into account in respect of the accounting period by virtue of that section (non-trading debits in respect of derivative contracts),

is to be treated as income of the period which is derived from shares or securities.

(4) Income treated as arising under regulation 18(1) of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001) is to be ignored.

(5) In determining the amount of a company's income for the purposes of condition C, no account is to be taken of any amount treated under section 1229(3)(b) of CTA 2009 (claw back of relief for expenses of management) as a receipt chargeable under the charge to corporation tax on income.

1161 The income retention condition: exceptions U.K.

(1) Condition D does not apply in relation to an accounting period if the amount that the company would be required to distribute in order to meet the condition is less than—

(a) £10,000, or

(b) if the period is shorter than 12 months, a proportionately reduced amount.

(2) Condition D does not apply in relation to an accounting period if—

(a) by virtue of a restriction imposed by law, the company is required to retain in respect of the period an amount of income that exceeds 15% of the income the company derives from shares and securities, and

(b) either—

(i) the amount of income that the company retains in respect of the accounting period does not exceed the amount of income that it is required to retain in respect of the period by virtue of a restriction imposed by law, or

(ii) if there is such an excess, the amount of the excess plus the amount of any income that the company distributes in respect of the period is less than £10,000.

(3) If the accounting period mentioned in subsection (2) is shorter than 12 months, the amount of £10,000 mentioned in subsection (2)(b)(ii) is proportionately reduced.

1162 The 15% holding limit: exceptions U.K.

(1) In condition E the reference to a holding in a company does not include a holding in—

(a) an investment trust, or

(b) a company that would qualify as an investment trust but for condition B (listing in the official UK list).

(2) Subsection (3) applies if a company has a holding in a company and immediately after—

(a) the time when the holding was acquired (if it has not been enlarged), or

(b) the most recent time when the holding was enlarged,

the holding represented 15% or less by value of the investing company's investments.

(3) For the purposes of condition E the holding is treated as continuing to represent 15% or less by value of the investing company's investments until the holding is next enlarged.

(4) Subsection (5) applies if—

(a) a company disposes of shares or securities from a holding it has in a company,

(b) immediately before the disposal the holding represents more than 15% by value of the investing company's investments, and

(c) immediately after the disposal the holding represents 15% or less by value of the investing company's investments.

(5) For the purpose of determining whether the investing company meets condition E in accounting periods later than that in which the disposal was made, the holding is treated (if it does not already fall to be so treated under subsection (3)) as continuing to represent 15% or less by value of the investing company's investments until the holding is next enlarged.

(6) If a holding which a company has in another company—

(a) was acquired before 6 April 1965, and

(b) on 6 April 1965 represented 25% or less by value of the investing company's investments,

condition E does not apply to the holding so long as it is not enlarged.

1163 Basic meaning of “holding in a company” U.K.

(1) In this Chapter “holding in a company” means the shares or securities (whether of one class or more than one class) held in any one company.

(2) For the purposes of section 1162 a holding in a company is enlarged whenever the company whose holding it is—

(a) acquires further shares or securities of the company, but

(b) does not do so by being allotted shares or securities without becoming liable to give any consideration.

1164 More about the meaning of “holding in a company” U.K.

(1) Subsection (2) applies if, in connection with a scheme of reconstruction—

(a) a company issues shares or securities,

(b) the shares or securities are issued 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, and

(c) those persons do not become liable to give any consideration for the shares or securities.

(2) For the purposes of this Chapter-

(a) a holding of the shares or securities of the second company, and

(b) a corresponding holding of the shares or securities issued by the first company,

are to be regarded as the same holding.

(3) For the purposes of this Chapter, holdings in two or more companies which are members of the same group are treated as holdings in a single company.

(4) Subsection (3) does not apply to a holding in—

(a) an investment trust, or

(b) a company that would qualify as an investment trust but for condition B (listing in the official UK list).

(5) For the purposes of subsection (3) it does not matter whether or not the group is one that includes the company which has the holdings.

(6) If a company (“company A”) is a member of a group, money owed to it by another member of the group is treated, for the purpose of determining whether condition E is met—

(a) as a security of the latter held by company A, and

(b) accordingly as, or as part of, the holding of company A in the company owing the money.

(7) In this section “group” means a company and all its 51% subsidiaries.

1165 Other interpretation U.K.

(1) In this Chapter “company” has the meaning given by section 1121 and is to be read in accordance with [F1 sections 99 and 103A of TCGA 1992 (application of that Act to unit trust schemes and to certain offshore funds)].

(2) In this Chapter “scheme of reconstruction” has the same meaning as in section 136 of TCGA 1992.

(3) In this Chapter “shares” includes stock and is to be read in accordance with [F2 sections 99 and 103A of TCGA 1992].

Textual Amendments

F1 Words in s. 1165(1) substituted by Finance Act 2009 (c. 10), Sch. 22 para. 11(2) (as substituted (with effect in accordance with s. 1184(1) of the amending Act) by 2010 c. 4, s. 1184(1), Sch. 1 para. 716(2) (with Sch. 2))

F2 Words in s. 1165(3) substituted by Finance Act 2009 (c. 10), Sch. 22 para. 11(2) (as substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 716(2) (with Sch. 2))