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Income and Corporation Taxes Act 1988

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842 Investment trusts.U.K.

M1(1)In the 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—

[F1(aa)that the company is resident in the United Kingdom; and]

(a)that the company’s income [F2(as determined in accordance with subsection (1AB) below)][F3consists wholly or mainly of eligible investment income][F4(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

[F5(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 [F6listed in the Official List of] the Stock Exchange; 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 [F7an amount which is greater than] 15 per cent. of [F8its eligible investment income][F9(determined in accordance with subsection (1AB) below)].

[F10(1AA)Income is eligible investment income for the purposes of this section in so far as it is either—

(a)income deriving from shares or securities, or

(b)eligible rental income, within the meaning of section 508A.]

[F11(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 Chapter 2 of Part 4 of the Finance Act 1996 in respect of the company’s loan relationships shall be determined without reference to any debtor relationships of the company.]

[F12(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 falls under section 75B(7)(b) to be regarded as income of the company chargeable under Case VI of Schedule D.]

[F13(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.

[F14(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.]

(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 F15. . . , 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.

(4)In this section “company” and “shares” shall be construed in accordance with sections [F1699 and 288 of [F17the 1992 Act]][F18and “scheme of reconstruction” has the same meaning as in section 136 of that Act].

Textual Amendments

F11988(F) s.117(1)(a)for accounting periods ending after 5th April 1988.

F2Words 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)

F3Words in s. 842(1)(a) substituted (with effect in accordance with Sch. 30 para. 3 of the amending Act) by virtue of Finance Act 1996 (c. 8), Sch. 30 para. 2(2)(a)

F4Words 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)

F51988(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”.

F6Words in s. 842(1)(c) substituted (with effect in accordance with Sch. 38 para. 7(3)(4) of the amending Act) by Finance Act 1996 (c. 8), Sch. 38 para. 7(1)(2)(b)

F7Words 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)

F8Words in s. 842(1)(e) substituted (with effect in accordance with Sch. 30 para. 3 of the amending Act) by Finance Act 1996 (c. 8), Sch. 30 para. 2(2)(b)

F9Words 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)

F10S. 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)

F11S. 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)

F131988(F) s.117(1)(c)for accounting periods ending after 5th April 1988.

F141990 s.55in relation to accounting periods ending on or after 26July 1990.

F15Words 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

F16Words 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))

F17Words in s. 842(4) substituted (retrospectively) by Finance Act 1994 (c. 9), Sch. 17 para. 8

F18Words 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)

Marginal Citations

M1Source—1970 s.359; 1973 s.54; 1979(C) Sch.7.

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