The Authorised Investment Funds (Tax) (Amendment No. 3) Regulations 2008

Part 2A deals with qualified investor schemes

4

This regulation is subject to regulation 14B (tax treatment of qualified investor schemes.

4

This regulation is subject to regulation 14B (tax treatment of qualified investor schemes).

Authorised investment funds with limited investment powers – stamp duty reserve tax14A

1

Where, for the relevant period—

a

an authorised investment fund is constituted as a unit trust scheme (“the scheme”); and

b

conditions A to D in this regulation are met,

paragraph 2 of Schedule 19 to the Finance Act 19995 (“FA 1999”) shall not apply to a surrender to the scheme that would, but for this regulation, be taxable under Part II of that Schedule.

2

Condition A is that the scheme must be dedicated to investment in the shares of a specified open-ended investment company to which Part 4A applies (“the PAIF”).

3

Condition B is that—

a

the trust deed of the scheme must specify that the scheme may only invest in the PAIF; and

b

the prospectus for the scheme must state that the scheme may only invest in the PAIF.

4

Condition C is when an investment in the scheme is made, the scheme must (within one working day of that investment) invest in the PAIF an amount equal to the investment.

5

Condition D is that when a withdrawal of investment from the scheme is made, the scheme must (within one working day of that withdrawal) withdraw from the PAIF an amount equal to the withdrawal.

6

For the purposes of complying with conditions C and D, an investment in the scheme may not be set off against a withdrawal from the scheme.

7

A scheme will not be dedicated to investment in the PAIF for the purpose of condition B if it has any assets other than shares in the PAIF and money.

8

In this regulation—

• “relevant period” means the relevant two-week period referred to in paragraph 4(2) of Schedule 19 to FA 19996.

• “surrender” means a surrender within the meaning of paragraph 2 of Schedule 19 to FA 1999.

• “working day” means a day other than—

  1. a

     a Saturday, Sunday, Christmas Day or Good Friday; or

  2. b

     a Bank Holiday in the United Kingdom under the Banking and Financial Dealings Act 19717.

• “money” includes cash held on deposit but does not include securities of any kind.

PART 2AQualified Investor Schemes

Tax treatment of qualified investor schemes14B

1

The provisions in paragraph (2) shall not apply to a qualified investor scheme in relation to an accounting period of the scheme unless the genuine diversity of ownership condition (see regulation 14C) is met in relation to that accounting period.

2

The provisions referred to in paragraph (1) are—

a

the provisions of Part 2 of these Regulations,

b

the provisions of Part 4A of these Regulations,

c

where the qualified investor scheme is an authorised unit trust scheme, section 468(1A) of ICTA9,

d

where the qualified investor scheme is an open-ended investment company, section 468A(1) of ICTA10,

e

in subsection (1) of section 99 of TCGA 199211 (as modified by these Regulations) the words “except that nothing in this section” to the end of that sub-section, and

f

section 100 of TCGA 199212.

3

Where the genuine diversity of ownership condition is not met in relation to an accounting period of the scheme—

a

section 13A of ICTA13 applies to the qualified investor scheme, whether or not that section would apply apart from this sub-paragraph; and

b

the total amount shown in the distribution accounts available for distribution to participants must only be shown as available for distribution in accordance with paragraph (1)(b) of regulation 17 (contents of distribution accounts).

4

In these Regulations a “qualified investor scheme” means a fund, authorised by the Financial Services Authority, in which a statement that the fund is a qualified investor scheme is included in the instrument constituting the scheme.

5

For the purposes of these Regulations, in relation to a qualified investor scheme, the “instrument constituting the scheme” means—

a

in relation to an open-ended investment company, the instrument of incorporation, and

b

in relation to an authorised unit trust scheme, the trust deed.

The genuine diversity of ownership condition14C

1

The genuine diversity of ownership condition is that the qualified investor scheme must—

a

meet Conditions A to D throughout the accounting period; or

b

comply with paragraph (9).

2

Condition A is that the scheme documents—

a

contain a statement that units in the scheme will be widely available,

b

specify the intended categories of investor, and

c

specify that the manager of the scheme must market and make available the units in the scheme in accordance with condition C.

3

Condition B is that neither—

a

the specification of the intended categories of investor referred to in paragraph (2)(b), nor

b

any other terms or conditions governing participation in the scheme, whether or not specified in the scheme documents,

have the effect of—

i

limiting investors to a limited number of specific persons or specific groups of connected persons, or

ii

deterring a reasonable investor within the intended categories of investor from investing in the scheme.

4

Condition C is that units in the scheme must be marketed and made available—

a

sufficiently widely to reach the intended categories of investors, and

b

in a manner appropriate to attract those categories of investors.

5

Condition C is subject to paragraph (8).

6

Condition D is that a person who is within one of the categories of intended investor in the scheme which have been specified in accordance with condition A may, upon request to the manager of the scheme, obtain information about the scheme and acquire units in it.

7

Condition D is subject to paragraph (8).

8

Conditions C and D shall be treated as being met even if at the relevant time the scheme has no capacity to receive additional investments, unless—

a

the capacity of the scheme to receive investments in it is fixed by the scheme documents (or otherwise); and

b

a pre-determined number of specific persons or specific groups of connected persons make investments in the scheme which collectively exhausts all, or substantially all, of that capacity.

9

The qualified investor scheme also meets the genuine diversity of ownership condition if—

a

an investor in the scheme is a unit trust scheme (a “feeder fund”),

b

paragraphs (2) to (8) are met in relation to the qualified investor scheme after taking into account the intended investors in the feeder fund, and

c

the qualified investor scheme and the feeder fund have the same manager (or proposed manager).

10

For the purposes of this regulation—

a

sections 993 and 994 of ITA 200714 (connected persons) apply in the case of a person chargeable to income tax, and

b

section 839 of ICTA15 (connected persons) applies in the case of a person chargeable to corporation tax.

11

In this regulation “scheme documents” means—

a

the instrument constituting the scheme, and

b

the scheme’s prospectus in issue for the time being (including any supplements to the prospectus).

Clearance in relation to the genuine diversity of ownership condition14D

1

An application for clearance that a qualified investor scheme meets the genuine diversity of ownership condition (see regulation 14C) may be made in writing to HM Revenue and Customs by the manager (or proposed manager) of a qualified investor scheme.

2

An application for clearance must be accompanied by the instrument constituting the scheme and its prospectus in the form in which it is proposed that those documents will apply at the beginning of the first accounting period of the scheme for which clearance is sought.

3

The Commissioners may require the manager (or proposed manager) to provide further particulars if they believe that full particulars of the scheme have not been provided.

4

The Commissioners must notify the applicant within 28 days of the receipt of the particulars (or, if paragraph (3) applies, of all further particulars required) that they—

a

give clearance that the scheme meets the genuine diversity of ownership condition;

b

give that clearance subject to conditions; or

c

refuse to give that clearance.

5

The qualified investor scheme (and investors in that scheme) may not rely on a clearance given under this regulation if—

a

at the beginning of the first accounting period of the scheme to which the clearance relates (and at the beginning of each subsequent accounting period), a relevant statement in the instrument constituting the scheme or in its prospectus in issue for the time being is not in accordance with a relevant statement in the documents considered by the Commissioners before giving clearance;

b

the scheme acts or is operated in contravention of a relevant statement in the instrument constituting the scheme or in its prospectus in issue for the time being;

c

the instrument constituting the scheme or the scheme’s prospectus in issue for the time being is materially amended; or

d

the scheme is operated otherwise than in accordance with condition C or D of the genuine diversity of ownership condition.

6

But paragraph (5)(c) does not apply if the manager of the scheme has obtained a clearance given under this regulation which applies to the amendment.

7

For the purposes of paragraph (5)(c), a material amendment is one that may reasonably be construed as causing, or likely to cause, the scheme to fail to meets the genuine diversity of ownership condition in relation to any accounting period.

2A

For the purpose of calculating the value of C in paragraph (1) in relation to a distribution made by an authorised investment fund (“AIF1”) to a participant, the amount of any distribution from another authorised investment fund (“AIF2”) which is treated by AIF1 as an annual payment by virtue of regulation 48(2)(a), shall be treated as not deriving from franked investment income arising to AIF2.

Participants chargeable to corporation tax: holdings in qualified investor schemes where scheme does not meet the genuine diversity of ownership condition51

1

This regulation applies if—

a

a participant has a holding in a qualified investor scheme, and

b

the scheme has not met the genuine diversity of ownership condition in regulation 14B in relation to an accounting period.

2

Section 212 of TCGA 199218 (annual deemed disposal of holdings of unit trusts etc.) does not apply to the participant in relation to that accounting period.

3

Paragraph 4 of Schedule 10 to FA 199619 (company holdings in unit trusts and offshore funds) shall not apply to the participant in relation to that accounting period.

Companies carrying on general insurance business: treatment of certain amounts of tax as foreign tax52A

1

This regulation applies if conditions A to C are met.

2

Condition A is that—

a

an authorised investment fund makes a dividend distribution, to which regulation 48(2) applies, to a participant carrying on general insurance business, and

b

the distribution mentioned in sub-paragraph (a) falls to be brought into account as a trading receipt of that business.

3

Condition B is that there is some foreign tax suffered by the authorised investment fund in respect of which relief is given or falls to be given in accordance with any arrangements having effect by virtue of section 788 of ICTA21 (relief by agreement with other territories) or by way of a credit under section 790(1) of that Act (unilateral relief).

4

Condition C is that the participant—

a

owns units which represent rights to 10% or more of the net asset value of the authorised investment fund; and

b

does not own those units as a nominee or a bare trustee.

5

But, for the purposes of paragraph (4), rights in an authorised investment fund held as assets of a company’s long-term insurance fund are not treated as held by the participant.

6

For the purposes of the specified provisions, an amount equal to the participant’s portion of the foreign tax mentioned in paragraph (3) is treated as foreign tax and not as United Kingdom tax.

7

For the purposes of paragraph (6), the participant’s portion shall be determined by reference to the proportions in which participants have rights in the authorised investment fund in the distribution period in question.

8

In paragraph (6), “the specified provisions” means—

a

section 804C of ICTA22 (insurance companies: allocation of expenses etc in computations under Case I of Schedule D), to the extent that it applies to business of a company which is not long-term business; and

b

regulation 48.

9

In this regulation—

• “general insurance business” means the business of effecting and carrying out contracts of insurance falling within Part 1 of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 200123;

• “long-term business” has the meaning given in section 431(2) of ICTA24 (interpretative provisions relating to insurance companies).

Conditions for this Part to apply to a company where the company is also a qualified investor scheme69DA

Where an open-ended investment company—

a

is also a qualified investor scheme (see regulation 14C); and

b

meets the genuine diversity of ownership condition in regulation 14B for an accounting period,

the company shall be treated as also meeting the genuine diversity of ownership condition in regulation 69J for the accounting period, even if it would not otherwise do so.

b

in the case of a qualified investor scheme, a person who is within one of the categories of intended investor in the scheme which have been specified in accordance with condition A may, upon request to the manager of the scheme, obtain information about the scheme and acquire units in it.

1

A PAIF distribution (interest) received by a participant in an open-ended investment company to which this Part applies shall be treated—

a

in the case of a participant within the charge to corporation tax, as if it were interest arising from a loan relationship; and

b

in the case of a participant within the charge to income tax, as if it were a payment of yearly interest falling within Chapter 2 of Part 4 of ITTOIA 200526.

Manufactured dividends representing property income distributions69Z24A

1

This regulation applies to the extent that a manufactured dividend which is paid by a dividend manufacturer is representative of property income distributions to which regulation 69Z15 applies.

2

The amount of the manufactured dividend falling within paragraph (1) is referred to in this regulation as “the manufactured PID amount”.

3

The recipient of the manufactured PID amount is treated as having received a distribution to which regulation 69Z18 applies.

4

In relation to the dividend manufacturer—

a

if the dividend manufacturer is a company and the manufactured dividend is paid in the course of a trade carried on in the United Kingdom, the manufactured PID amount shall be treated as an expense of the trade;

b

if the manufactured dividend is paid in connection with investment business, the manufactured PID amount shall be treated for the purposes of section 75 of ICTA27 as expenses of management; and

c

in the case of a company carrying on life assurance business, so much of the manufactured PID amount as would be referable by virtue of section 432A of ICTA28 to basic life assurance and general annuity business if it were received by the company shall be treated for the purposes of section 76 of ICTA29 as if it were an expense payable falling to be brought into account at step 3 of section 76(7).

5

Regulations 69Z22, 69Z24 and 69Z29 to 69Z35 apply to the dividend manufacturer as if—

a

the dividend manufacturer were an open-ended investment company to which this Part applies; and

b

the manufactured PID amount were a distribution to which those regulations apply.

Manufactured dividends representing PAIF distributions (interest)69Z24B

1

This regulation applies to the extent that a manufactured dividend which is paid by a dividend manufacturer is representative of a PAIF distribution (interest) to which regulation 69Z16 applies.

2

The amount of the manufactured dividend to which this regulation applies is referred to in this regulation as the “manufactured PAIF interest amount”.

3

If the recipient of the manufactured dividend is a company within the charge to corporation tax it is treated as having received, in relation to the manufactured PAIF interest amount, an amount to which section 97 of FA 199630 applies.

4

If the recipient of the manufactured dividend is within the charge to income tax it is treated as having received, in relation to the manufactured PAIF interest amount, an amount to which regulation 69Z19 applies.

5

If the dividend manufacturer is a company within the charge to corporation tax, section 97 of FA 1996 is treated as applying to the manufactured PAIF interest amount.

6

Regulations 69Z23, 69Z24 and 69Z29 to 69Z35 apply to the dividend manufacturer in relation to the manufactured PAIF interest amount as if the dividend manufacturer were an open-ended investment company to which this Part applies.

Manufactured dividends – PAIF distributions (dividends)69Z24C

1

This regulation applies to the extent that a manufactured dividend which is paid by a dividend manufacturer is representative of a PAIF distribution (dividends) to which regulation 69Z17 applies.

2

The recipient of the manufactured dividend is treated as having received, to that extent, an amount to which regulation 69Z20 applies.

3

If the dividend manufacturer is a company, paragraph 2(2)(b) of Schedule 23A to ICTA31 has effect in relation to the amount of the manufactured dividend to which paragraph (1) applies.

Interpretation69Z24D

In regulations 69Z24A to 69Z24C, “manufactured dividend” and “dividend manufacturer” have the meanings given by Schedule 23A to ICTA .

4A

After paragraph (b) of section 432A(1ZA) of ICTA32 (apportionment of income and gains), there is treated as inserted—

ba

income from property income distributions to which regulation 69Z15 of the Authorised Investment Funds (Tax) Regulations 2006 apply (property income distributions by an open-ended investment company.