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The Authorised Investment Funds (Tax) Regulations 2006

Type Statutory-Instrument

Publication 2006-03-29

Last updated 2021-12-09

State In force

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(ii) the form in which it is proposed that those documents will apply at the beginning of the specified period.

(8) A future company notice may be given at any time before the proposed company is authorised and incorporated if—

(a) HM Revenue and Customs have given clearance under regulation 9B, and

(b) the applicant certifies that there have been no changes in substance between—

(i) the form in which the proposed company’s instrument of incorporation and its prospectus were considered by HM Revenue and Customs before giving the clearance, and

(ii) the form in which it is proposed that those documents will apply at the time when the proposed company is authorised.

Contents of notice under regulation 69O

69Q

(1) This regulation applies if notice is given under regulation 69O.

(2) An existing company notice must specify the accounting period from the beginning of which this Part is to apply to the company (the “specified accounting period”).

(3) An existing company notice must be accompanied by—

(a) a statement by the manager of the open-ended investment company that the conditions specified regulation 9A and in regulations 69E to 69N are reasonably expected to be met in respect of the company throughout the specified accounting period;

(b) the following documents relating to the company—

(i) its instrument of incorporation, and

(ii) its prospectus;

(c) a copy of the application to the appropriate regulator for agreement to changes in the company’s instrument of incorporation and its prospectus; and

(d) copies of any documents accompanying the application mentioned in sub-paragraph (c) to the extent that those documents do not fall within sub-paragraphs (a) and (b).

(4) A future company notice must specify that this Part will apply to the proposed company from the date of its incorporation and authorisation.

(5) A future company notice must be accompanied by—

(a) a statement by the applicant that the conditions specified in regulation 9A and regulations 69E to 69N are reasonably expected to be met in respect of the proposed company throughout its first accounting period;

(b) the following documents relating to the proposed company—

(i) its proposed instrument of incorporation, and

(ii) its ... prospectus ... ;

(c) a copy of the application to the appropriate regulator for approval of the proposed company as an open-ended investment company; and

(d) copies of any documents accompanying the application mentioned in sub-paragraph (c) to the extent that those documents do not fall within sub-paragraphs (a) and (b).

Procedural matters relating to the giving of notice for this Part to apply

Notice: further provisions: quashing notices

69R

(1) This regulation applies if any of conditions A to C are met.

(2) Condition A is that an existing company notice is given, but the notice is not accompanied by the documents specified in regulation 69Q(3)(b).

(3) Condition B is that a future company notice is given, but the notice is not accompanied by the documents specified in regulation 69Q(5)(b).

(4) Condition C is that a person gives a notice under regulation 69O in circumstances where the documents supplied do not demonstrate that the open-ended investment company (or the proposed open-ended investment company) will meet all the conditions of membership of the Property AIF regime.

(5) HM Revenue and Customs may give a notice (a “quashing notice”) quashing the notice given under regulation 69O—

(a) to the manager of the open-ended investment company if an existing company notice has been given, or

(b) to the applicant if a future company notice has been given.

Procedure relating to quashing notices

69S

(1) HM Revenue and Customs must not give a quashing notice until—

(a) they have given a notice (a “preliminary notice”) to the person giving the notice under regulation 69O specifying the reasons why the preliminary notice is given, and

(b) they have given the person giving the notice under regulation 69O a period of 28 days to rectify the matters specified in the preliminary notice.

Paragraph (1)(b) is subject to paragraphs (7) to (9).

(2) HM Revenue and Customs must give a preliminary notice within a period of 28 days beginning with the day on which they receive the notice given under regulation 69O.

(3) HM Revenue and Customs must—

(a) give a quashing notice, or

(b) give notice to the manager of the open-ended investment company or to the applicant (as the case may be) that they are satisfied that the matters specified in the preliminary notice have been rectified,

within a period of 28 days beginning on the day specified in paragraph (4).

(4) The day specified is whichever is the earlier to occur of—

(a) the day immediately following the expiry of the period specified in the preliminary notice, and

(b) the day on which HM Revenue and Customs receive notice from the manager of the open-ended investment company or from the applicant (as the case may be) that the manager or applicant thinks—

(i) that the matters specified in the preliminary notice have been rectified, or

(ii) that the original notice given under regulation 69O is valid.

(5) If HM Revenue and Customs give a preliminary notice, the open-ended investment company (or, as the case may be, the proposed open-ended investment company) in respect of which the notice is given may not enter the Property AIF regime until HM Revenue and Customs have notified the manager of the company (or, as the case may be, the applicant) that they are satisfied that the matters specified in the preliminary notice have been rectified.

(6) If HM Revenue and Customs give a quashing notice, and the person to whom the notice is given appeals, the open-ended investment company (or, as the case may be, the proposed open-ended investment company) in respect of which the notice is given may not enter the Property AIF regime until the appeal is determined.

(7) The period of 28 days mentioned in paragraph (1)(b) is replaced by the period referred to in paragraph (9) if, within that 28 day period, the conditions specified in paragraph (8) are met.

(8) The conditions are that—

(a) HM Revenue and Customs and the applicant are in agreement as to the changes needed to the notice or to the documents accompanying the notice (or to both),

(b) the applicant has given notice to HM Revenue and Customs stating that the changes referred to in sub-paragraph (a) will take a specified period (which is longer than 28 days) to effect, and

(c) HM Revenue and Customs have given notice to the applicant accepting the statement made in the notice given under sub-paragraph (b).

(9) The period is the specified period mentioned in paragraph (8)(b).

Appeal against quashing notice

69T

(1) A person to whom a quashing notice is given may appeal ....

(2) The notice of appeal must be given to HM Revenue and Customs within a period of 28 days beginning with the day on which the quashing notice is given.

(3) On an appeal that is notified to the tribunal, the tribunal shall determine whether it was just and reasonable for HM Revenue and Customs to give the quashing notice.

(4) If the tribunal allows the appeal—

(a) the tribunal may direct that this Part shall apply to the open-ended investment company (or, as the case may be to the proposed open-ended investment company), and

(b) the tribunal may specify the date from which this Part shall so apply.

(5) The date mentioned in paragraph (4)(b)—

(a) must not be earlier than the beginning of the specified accounting period if an existing company notice has been given, and

(b) must not be earlier than the date of incorporation and authorisation if a future company notice has been given.

Clearance applications

Clearance in relation to the genuine diversity of ownership condition

69U

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consequences of entry

Effects of entry

69V

(1) Property rental business of F (pre-entry) shall be treated for the purposes of corporation tax as ceasing at entry.

(2) Assets which immediately before entry are involved in property rental business of F (pre-entry) shall be treated for the purposes of corporation tax as being sold by F (pre-entry) immediately before entry and reacquired by F (tax-exempt) immediately after entry.

(3) For the purposes of corporation tax, on entry one accounting period of the open-ended investment company shall end and another shall begin.

(4) On entry a new distribution period of the open-ended investment company shall begin.

(5) The sale and reacquisition deemed under paragraph (2) shall not have effect for the purposes of tax in respect of chargeable gains.

(6) For the purposes of CAA 2001, the sale and reacquisition deemed under paragraph (2)—

(a) shall not give rise to allowances or charges, and

(b) shall not make it possible to make an election under section 198 or 199 of that Act (apportionment).

(7) For the purposes of CAA 2001, anything done by or to F (pre-entry) before entry in relation to an asset which is deemed under paragraph (2) to be sold and reacquired shall be treated after entry as having been done by or to F (tax-exempt).

Duration

69W

Once this Part has begun to apply to an open-ended investment company it shall continue to apply unless and until it ceases to apply in accordance with Chapter 7 of this Part.

CHAPTER3 — THE TAX TREATMENT OF PROPERTY AIFS

Categories of business

Ring-fencing of tax-exempt business

69X

(1) For the purposes of corporation tax, the business of F (tax-exempt) shall be treated as a separate business (distinct from—

(a) any business carried on by F (pre-entry),

(b) any business carried on by F (residual), and

(2) For the purposes of corporation tax, F (tax-exempt) shall be treated as a separate company (distinct from—

(a) F (pre-entry),

(b) F (residual), and

(3) In particular—

(a) a loss incurred by F (tax-exempt) may not be set off against the net income of F (residual),

(b) a loss incurred in respect of F (residual) may not be set off against the net income of F (tax exempt),

(c) a loss incurred in respect of F (pre-entry) may not be set off against the net income of F (tax-exempt) (but this regulation does not prevent a loss of that kind from being set off against profits of F (residual)),

(d) a loss incurred by F (tax-exempt) may not be set off against profits arising to F (post-cessation) (in respect of business of any kind), and

(e) receipts accruing after entry but relating to business of F (pre-entry) shall not be treated as receipts of F (tax-exempt).

(4) In paragraph (3) a reference to a loss includes a reference to a deficit, expense, charge or allowance.

(5) Section 392B of ICTA (ring-fencing of losses from overseas property business) shall not apply to business of F (tax-exempt).

(6) Paragraphs 5B and 5C of Schedule 28AA to ICTA (transfer pricing: exemption for small and medium enterprises) shall not apply to an open-ended investment company to which this Part applies (whether to F (tax-exempt) or to F (residual)).

Chargeability to tax

Chargeability to corporation tax

69Y

(1) The net income of F (tax-exempt) (see regulation 69Z1) shall not be charged to corporation tax.

(2) The net income of F (residual) (see regulation 69Z3) shall be charged to corporation tax at the rate applicable for open-ended investment companies (see section 468A(1) of ICTA).

Meaning of “net income”

69Z

(1) In this Part the “net income” of an open-ended investment company for an accounting period means, in the case of an open-ended investment company that prepares accounts in accordance with UK generally accepted accounting practice, the amount falling to be dealt with under the heading net revenue/(expense) before taxation in the company’s statement of total return for the accounting period.

(2) In paragraph (1) “the company’s statement of total return for the accounting period” is to be construed in accordance with regulation 12.

Calculation of net income of F (tax-exempt)

69Z1

(1) This regulation applies to determine the net income of F (tax-exempt) for the purposes of this Part.

(2) Section 21A of ICTA (calculation of profits of Schedule A business) shall apply to income arising from the business of F (tax-exempt).

(3) Paragraph 2(3) of section 15(1) of ICTA (Schedule A: disregard of credits and debits from loan relationships and derivative contracts) shall not apply in respect of—

(a) a loan relationship if or in so far as it relates to tax-exempt business,

(b) a hedging derivative contract if or in so far as it relates to tax-exempt business, or

(4) For the purposes of paragraph (3)—

(a) a derivative contract is hedging in relation to a company if or in so far as it is acquired as a hedge of risk in relation to an asset by the exploitation of which tax-exempt business is conducted,

(b) a derivative contract is hedging in relation to a company if or in so far as it is acquired as a hedge of risk in relation to a liability incurred in connection with tax-exempt business,

(c) a designation of a contract as wholly or partly hedging for the purposes of a company’s accounts shall be conclusive, and

(d) “embedded derivatives” and “host contract” shall be construed—

(i) in accordance with section 94A of FA 1996 in relation to loan contracts with embedded derivatives,

(ii) in accordance with paragraph 2A of Schedule 26 to FA 2002 in relation to non-financial contracts with embedded derivatives,

(iii) in accordance with paragraph 2B of Schedule 26 to FA 2002 in relation to hybrid derivatives.

(5) In paragraph (4)(a) the reference to an asset includes a reference to—

(a) the value of an asset, and

(b) profits attributable to it.

(6) Net income shall be computed without regard to items giving rise to credits or debits which would be within Schedule 26 to FA 2002 (derivative contracts) but for paragraph 4(2)(b) of that Schedule (exclusion of share-based and unit-trust-based contracts).

(7) Income and expenditure relating partly to tax-exempt business and partly to non-tax-exempt business shall be apportioned reasonably.

(8) Section 3(1) of CAA 2001 (claims for capital allowances) shall not apply; and any allowance which the company could claim under that section shall be made automatically and reflected in the calculation of net income.

Components of income arising to F (residual)

69Z2

(1) For the purposes of this Part the income arising to F (residual) consists of—

(a) distributions qualifying for exemption under section 208 of ICTA, and

(b) income arising from the business of F (residual).

(2) Section 21A of ICTA (calculation of profits of Schedule A business) shall apply to income arising from the business of F (residual) if and to the extent that income arising from the business of F (residual) is chargeable to corporation tax under Schedule A.

Calculation of net income of F (residual)

69Z3

Use this regulation to determine the net income of F (residual) for the purposes of this Part.

First rule

Determine the amount of the income arising to F (residual).

Second rule

Deduct any amounts whose deduction is required or allowed under the Corporation Tax Acts (including any distributions qualifying for exemption under section 208 of ICTA).

In this Part the amount so found is called the “pre-distribution amount”.

Third rule

Deduct the amount attributed to PAIF distributions (interest) under regulation 69Z14(b).

The result is the net income of F (residual).

Breaches of conditions

Breach of the genuine diversity of ownership condition

69Z4

(1) This regulation applies if an open-ended investment company to which this Part applies is in breach of the genuine diversity of ownership condition.

(2) Within 28 days of becoming aware of the breach, the company must provide the following information to the Commissioners—

(a) the date on which the condition first ceased to be met;

(b) the date on which the company became aware of the breach;

(d) the nature of the breach;

(e) the steps the company proposes to take to rectify the breach; and

(f) the date by which the company proposes to rectify the breach.

(3) The date referred to in paragraph (2)(f) must be the earliest date by which the objective of complying with the genuine diversity of ownership condition may reasonably be achieved.

(4) The Commissioners may give a termination notice to the company if—

(a) the steps that the company proposes to take will not rectify the breach, or

(b) the date by which the company proposes to rectify the breach is not the earliest date by which the objective of remedying the genuine diversity ownership condition may reasonably be achieved.

(5) If there are three different breaches of the genuine diversity of ownership condition in three different accounting periods in a period of ten years beginning with the first day of the accounting period in which the company becomes aware of the first of those breaches, the Commissioners may give a termination notice to the company.

Breach of the corporate ownership condition

69Z5

(1) This regulation applies if an open-ended investment company to which this Part applies is in breach of the corporate ownership condition.

(2) If there is a breach which is caused by the action of a shareholder in the company and the company has not taken reasonable steps to prevent the breach (so that, accordingly, there is a charge to corporation tax under regulation 69Z12) (a “specified breach”), this Part shall continue to apply to the company despite the breach (but see paragraph (3) and regulation 69Z8).

(3) If there are three specified breaches in a period of ten years beginning with the first day of the accounting period in which the first specified breach occurs, the Commissioners may give a termination notice to the company.

Breach of the loan creditor condition

69Z6

(1) This regulation applies if an open-ended investment company to which this Part applies is in breach of the loan creditor condition.

(2) If the company is inadvertently in breach of the loan creditor condition but rectifies the breach within a period of 28 days beginning with the day on which the company first becomes aware of the breach, this Part shall continue to apply to the company despite the breach (but see paragraphs (5) and (6) and regulation 69Z8).

(3) If the company is inadvertently in breach of the loan creditor condition but does not rectify the breach within a period of 28 days beginning with the day on which the company first becomes aware of the breach, the Commissioners may give a termination notice to the company.

(4) If the company is intentionally or negligently in breach of the loan creditor condition, the Commissioners may give a termination notice to the company.

(5) If the company is in breach of the same condition specified in paragraphs (2) to (5) of regulation 69M in two different accounting periods in a period of ten years beginning with the first day of the accounting period in which the company becomes aware of the first of those breaches, the Commissioners may give a termination notice to the company.

(6) If the company is in breach of the conditions specified in paragraphs (2) to (5) of regulation 69M in three different accounting periods in a period of ten years beginning with the first day of the accounting period in which the company becomes aware of the first of those breaches, the Commissioners may give a termination notice to the company.

Breach of balance of business conditions

69Z7

(1) Paragraph (2) applies if a newly qualified company—

(a) is in breach of condition A set out in regulation 69N(2)(a) in its first accounting period, or

(b) is in breach of condition B set out in regulation 69N(3)(a) at the end of its first accounting period.

(2) This Part shall cease to apply to the company at the end of its first accounting period and regulation 69Z41 shall apply.

(3) Paragraphs (4) to (7) apply if an open-ended-investment company to which this Part applies—

(a) is in breach of condition A set out in regulation 69N(2)(b) in an accounting period, or

(b) is in breach of condition B set out in regulation 69N(3)(b) at the end of an accounting period.

(4) If the conditions specified in paragraph (6) are met, this Part shall continue to apply to the company despite the breach (but see paragraph (7) and regulation 69Z8).

(5) If the conditions specified in paragraph (6) are not met, the Commissioners may give a termination notice to the company.

(6) The conditions are that—

(a) property investment business is at least 50% of the company’s net income in the accounting period,

(b) the value of the assets involved in property investment business is at least 50% of the total value of assets held by the company at the end of the accounting period.

(7) If this regulation applies to a company in three different accounting periods in a period of ten years beginning with the first day of the accounting period in which the company becomes aware of the first of those breaches, the Commissioners may give a termination notice to the company.

Multiple breaches of separate conditions

69Z8

(1) This regulation applies in relation to an open-ended investment company to which this Part applies if—

(a) there has been a breach of at least two of the conditions in regulation 9A or regulations 69E to 69N,

(b) at least one of the conditions breached is contained in a different regulation from that containing another of those breached, and

(c) there have been five breaches in a period of ten years beginning with the first day of the accounting period in which the first breach occurs.

(2) The Commissioners may give a termination notice to the company.

Further provisions

Profit/financing costs in the case of a Property AIF that is a qualified investor scheme

69Z9

(1) This regulation applies if conditions A and B are met.

(2) Condition A is that an open-ended investment company to which this Part applies is a qualified investor scheme.

(3) Condition B is that the result of the following calculation is less than 1.25 in respect of an accounting period—

Income / Financing Costs

$IncomeFinancing Costs$

(4) In paragraph (3)—

“Income” means the amount of the net income of F (tax-exempt) arising in the accounting period (before the offset of capital allowances, of losses from a previous accounting period, and of amounts taken into account under regulation 69Z1(3)), and

“Financing Costs” means the amount of the financing costs incurred in that period in respect of the business of F (tax-exempt).

(5) An amount shall be charged to corporation tax.

(6) That amount is determined as follows—

Step OneDetermine the financing costs which, given the actual income, would produce the result of 1.25 in the calculation specified in paragraph (3) (the “theoretical financing costs”).

Step TwoDetermine the amount by which the actual financing costs exceed the theoretical financing costs (“the excess financing cost”).

Step ThreeDivide the main rate at which corporation tax is charged for the accounting period by the rate at which corporation tax is charged on an open-ended investment company for the accounting period (see section 468A(1) of ICTA) to determine the multiplier.

Step FourMultiply the excess financing cost by the multiplier.

The result is the amount charged to tax.

(7) For the purposes of paragraphs (3) and (4) “financing costs” are the costs of debt finance; and in calculating the costs of debt finance in respect of an accounting period the matters to be taken into account include—

(a) costs giving rise to debits in respect of debtor relationships of the company under Chapter 2 of Part 4 of FA 1996 (loan relationships), other than debits in respect of exchange losses from such relationships (within the meaning of section 103(1A) and (1B) of that Act),

(b) any exchange gain or loss from a debtor relationship within the meaning of that Chapter in relation to debt finance,

(c) any credit or debit falling to be brought into account under Schedule 26 to FA 2002 (derivative contracts) in relation to debt finance,

(d) the financing cost implicit in a payment under a finance lease, and

(e) any other costs arising from what would be considered, in accordance with generally accepted accounting practice, to be a financing transaction.

(8) No loss, deficit, expense or allowance may be set off against the amount charged to tax by paragraph (5).

Cancellation of tax advantage

69Z10

(1) This regulation applies if a company to which this Part applies has tried to obtain a tax advantage for itself or another person.

(2) The Commissioners may give a notice to the company specifying the tax advantage.

(3) If the Commissioners give a notice to the company under paragraph (2) a tax advantage obtained by the company shall be counteracted, in accordance with the notice, by an adjustment by way of—

(a) an assessment;

(b) the cancellation of a right of repayment;

(d) the computation or recomputation of profits or gains, or liability to tax, on a basis specified by the Commissioners in the notice.

(4) The Commissioners may (in addition to the adjustment under paragraph (3)) assess the company to such additional amount of income tax under Case VI of Schedule D as they think is equivalent to the value of the tax advantage.

(5) For the purposes of this regulation “tax advantage” has the meaning given by section 709 of ICTA.

(6) But a company does not obtain a tax advantage by reason only of this Part applying to it, unless it does anything (whether before or during the application of this Part) which is wholly or principally designed to create or inflate or apply a loss, deduction or expense (whether or not suffered or incurred by the company).

Appeal against notice under regulation 69Z10

69Z11

(1) If a notice is given to a company under regulation 69Z10, the company may appeal ....

(2) The notice of appeal must be given to HM Revenue and Customs within a period of 28 days beginning with the day on which the notice under regulation 69Z10 is given.

(3) On an appeal that is notified to the tribunal, the tribunal may—

(a) affirm, vary or cancel the notice, and

(b) affirm, vary or quash an assessment made under regulation 69Z10(4).

Distribution to holder of excessive rights: charge to tax

69Z12

(1) This regulation applies if an open-ended investment company to which this Part applies—

(a) makes a distribution to, or in respect of, a holder of excessive rights (see regulation 69Z13), and

(b) the company has not taken reasonable steps to prevent the possibility of such a distribution being made.

(2) The company is treated as having received an amount of income calculated in accordance with paragraph (3).

(3) The amount of the income is determined by the formula—

(4) In paragraph (3)—

I is the net income of F (tax-exempt) distributable in accordance with regulation 69Z14(a);

P is the percentage of the rights to the net asset value of the company held by, or on behalf of, the holder of excessive rights.

(5) The amount determined in accordance with paragraph (3) shall be charged to corporation tax as if it were income of F (residual) chargeable under Case VI of Schedule D arising in the accounting period in which the distribution mentioned in paragraph (1) was made by the company.

(6) No loss, deficit, expense or allowance may be set off against the amount charged to tax by paragraph (5).

Meaning of “holder of excessive rights”

69Z13

(1) In this Part a “holder of excessive rights” means a body corporate which—

(a) is a participant in an open-ended investment company to which this Part applies, and

(b) is beneficially entitled to shares representing rights to 10% or more of the net asset value of the company.

(2) Paragraphs (4) and (5) of regulation 69L apply for the purposes of paragraph (1) as they apply for the purposes of regulation 69K.

(3) In this Part an “excessive holding” means the holding of a holder of excessive rights.

CHAPTER4 — DISTRIBUTIONS MADE BY PROPERTY AIFS

Attribution of distributions

69Z14

The total amount available for income allocation in an open-ended investment company to which this Part applies shall be attributed—

(a) first, to property income distributions up to the amount of the net income of F (tax-exempt) (determined in accordance with regulation 69Z1),

(b) secondly, to PAIF distributions (interest) up to the pre-distribution amount (determined in accordance with regulation 69Z3), and

Property income distributions

69Z15

(1) This regulation applies if—

(a) an open-ended investment company to which this Part applies makes a distribution, and

(b) the amount distributed includes sums attributed to property income distributions.

(2) The Tax Acts shall have effect as if the sums were payments made on the distribution date by the company to the participants in proportion to their rights.

(3) Regulation 69Z18 (property income distributions: liability to tax of participants) explains how a property income distribution received by a participant is treated.

(4) In these Regulations a “property income distribution” means a sum attributed to property income distributions which is distributed (including a payment made to a participant who is not chargeable to income tax or corporation tax).

PAIF distributions (interest)

69Z16

(1) This regulation applies if—

(a) an open-ended investment company to which this Part applies makes a distribution, and

(b) the amount distributed includes sums attributed to PAIF distributions (interest).

(2) The Tax Acts shall have effect as if the sums were payments of yearly interest made on the distribution date by the company to the participants in proportion to their rights.

(2A) For the purposes of Part 10 (Corporate Interest Restriction) of TIOPA 2010, a PAIF distribution (interest) is treated as not being a tax-interest expense amount of the company.

(3) In this Part a “PAIF distribution (interest)” means a sum attributed to PAIF distributions (interest) which is distributed (including a payment made to a participant who is not chargeable to income tax).

PAIF distributions (dividends)

69Z17

(1) This regulation applies if—

(a) an open-ended investment company to which this Part applies makes a distribution, and

(b) the amount distributed includes sums attributed to PAIF distributions (dividends).

(2) The Tax Acts shall have effect as if the sums were dividends on shares paid on the distribution date by the company to the participants in proportion to their rights.

(3) In this Part a “PAIF distribution (dividends)” means a sum attributed to PAIF distributions (dividends) which is distributed (including a dividend treated as paid to a participant who is not chargeable to corporation tax).

CHAPTER5 — THE TREATMENT OF PARTICIPANTS IN PROPERTY AIFS

Treatment of distributions: liability to tax of participants

Property income distributions: liability to tax of participants

69Z18

(1) A property income distribution 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 profits of a Schedule A business, and

(b) in the case of a participant within the charge to income tax, as the profits of a UK property business (within the meaning of section 264 of ITTOIA 2005).

(2) A distribution received by a participant who is not resident in the United Kingdom—

(a) if the participant is a company within the charge to corporation tax, shall be chargeable to tax as profits of a Schedule A business,

(b) if the participant is a person other than a company within the charge to corporation tax, shall be chargeable to tax as profits of a UK property business (within the meaning of section 264 of ITTOIA 2005), and

(c) in either case shall not be chargeable to tax by virtue of sections 971 and 972 of ITA 2007 (non-resident landlords).

(3) Paragraph (1) shall not apply in relation to a participant if and in so far as the participant—

(a) is a dealer in respect of distributions (within the meaning of section 95 of ICTA),

(b) is a dealer in securities who is charged to tax under Part 2 of ITTOIA 2005 (trading income) in respect of distributions made by companies,

(c) is an individual member of Lloyd’s (within the meaning given by section 184(1) of FA 1993) and the distribution is made in respect of assets forming part of—

(i) a premium trust fund of his (within the meaning given by section 174 of FA 1993), or

(ii) an ancillary trust fund of his (within the meaning given by section 176 of FA 1993), or

(d) is a corporate member of Lloyd’s (within the meaning given by section 230(1) of FA 1994) and the distribution is made in respect of assets forming part of—

(i) a premium trust fund of his (within the meaning given by section 222 of FA 1994), or

(ii) an ancillary trust fund of his (within the meaning given by section 223 of FA 1994).

(4) Section 114(1)(a) of ICTA (partnerships with companies as members) does not disapply paragraph (1).

(5) Sections 231 of ICTA and 397 of ITTOIA 2005 (tax credits in respect of qualifying distributions) shall not apply to property income distributions.

(6) Property income distributions received by one participant acting in one capacity shall be treated, for the purposes of paragraph (1), as the profits of a single business which is separate from—

(a) any other Schedule A business carried on by the participant,

(b) any other UK property business (within the meaning of section 264 of ITTOIA 2005) carried on by the participant,

(d) any overseas property business (within the meaning of section 265 of ITTOIA 2005) carried on by the participant.

(7) In the case of a participant which is a partnership, paragraph (6) applies to receipts by a partner of a share of any distribution as it applies to receipts by a participant.

PAIF distributions (interest): liability to tax of participants

69Z19

(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 2005.

(2) Sections 231 of ICTA and 397 of ITTOIA 2005 (tax credits in respect of qualifying distributions) shall not apply to PAIF distributions (interest).

Property distributions (dividends): liability to tax of participants

69Z20

(1) A PAIF distribution (dividends) received by a participant in an open-ended investment company to which this Part applies shall be treated as if it were a dividend on shares.

(2) If a PAIF distribution (dividends) is made for a distribution period to a participant chargeable to corporation tax, regulations 48 to 52A shall not apply to the distribution.

Distributions made after cessation

69Z21

(1) This regulation applies if an open-ended investment company—

(a) is a company to which this Part applies in respect of an accounting period,

(b) makes a distribution in respect of that accounting period, and

(2) Regulations 69Z18 to 69Z20 apply in relation to the distribution.

Deduction of tax from distributions

Deduction of tax from property income distributions

69Z22

(1) On making a property income distribution, an open-ended investment company to which this Part applies must deduct a sum representing income tax at the basic rate in force for the tax year in which the distribution date falls.

(2) A property income distribution shall be treated as having been received by the participant after deduction of income tax at the basic rate for the year of assessment in which the distribution date falls, from a corresponding gross amount.

(3) The sum is accordingly taken into account under sections 59B and 59D of TMA 1970 (see also paragraph 8 of Schedule 18 to the Finance Act 1998) in determining the income tax or corporation tax payable by, or repayable to, the participant.

(4) This regulation is subject to regulation 69Z24 (distribution payments to be made without deduction of tax).

Deduction of tax from PAIF distributions (interest)

69Z23

(1) On making a PAIF distribution (interest), an open-ended investment company to which this Part applies must deduct a sum representing income tax at the basic rate in force for the tax year in which the PAIF distribution (interest) is made.

(2) Accordingly, the sum is one to which section 874 of ITA 2007 applies.

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) This regulation is subject to regulation 69Z24 (distribution payments to be made without deduction of tax).

Distribution payments to be made without deduction of tax

69Z24

(1) Subject to paragraphs (3A) and (3B), on making a distribution, an open-ended investment company to which this Part applies must not deduct any sum representing income tax if the company reasonably believes that conditions A and B are met.

(2) Condition A is that if the distribution were made by a UK-REIT out of the profits of C (tax-exempt), the distribution would be required to be made without any deduction representing income tax.

(3) Condition B is that if the distribution were a distribution of yearly interest, the distribution would be required to be made without any deduction representing income tax.

(3A) But neither condition A nor condition B is met, in relation to a unit trust scheme, where—

(a) the distribution is made to the trustee of the scheme;

(b) the trustee is chargeable to corporation tax or income tax on the distribution in the United Kingdom; and

(c) the trustee has made a request in writing to the Property AIF that the Property AIF should deduct tax from the distribution.

(3B) The Property AIF must not specify that the trustee of any unit trust scheme seeking to acquire shares in the Property AIF must have tax deducted from any distribution.

(4) If at the time it makes a distribution the company reasonably believes that conditions A and B are met, but in fact those conditions are not both met, these Regulations shall apply to the distribution as if it were never one which could be made without deduction of tax.

(5) In paragraph (2) “profits of C (tax-exempt)” shall be construed in accordance with Part 4 of FA 2006.

CHAPTER6 — COMPLIANCE IN RELATION TO THE PROPERTY AIF REGIME

Company tax return

Documents to be included with company tax return

69Z25

(1) An open-ended investment company to which this Part applies must include documents A and B in its company tax return.

(2) Document A is a calculation of the net income of F(tax-exempt) and F(residual) in accordance with regulations 69Z1 to 69Z3.

(3) Document B is a reconciliation between—

(a) the net income of the company (see regulation 69Z), and

(b) the total amount available for income allocation as attributed in accordance with regulation 69Z14.

(4) In paragraph (1) “company tax return” means the return required to be delivered pursuant to a notice under paragraph 3 of Schedule 18 to the Finance Act 1998, as read with paragraph 4 of that Schedule.

(5) Section 98 of TMA 1970 applies to any failure to furnish any information, give any certificate or produce any document or record in accordance with any provision of this Chapter as it applies to any such failure in the case of any provision specified in the second column of the Table below that section.

Breaches of conditions in Chapter 2

Information to be provided by company to which this Part applies

69Z26

(1) This regulation applies if an open-ended investment company to which this Part applies—

(a) does not meet a condition set out in Chapter 2 of this Part (entry into and membership of the Property AIF regime), and

(b) becomes aware that it does not meet the condition.

(2) As soon as reasonably practicable, the company must provide the following information to the Commissioners—

(a) the date on which the condition first ceased to be met and the date (if any) on which the condition was satisfied again;

(b) details of the condition that was breached;

(d) what (if anything) the company has done to prevent the breach recurring.

(3) This regulation does not apply if the breach of condition is one to which regulation 69Z27 applies.

Holders of excessive rights

Information relating to holders of excessive rights

69Z27

(1) This regulation applies if an open-ended investment company to which this Part applies becomes aware that it has made a distribution to, or in respect of, a holder of excessive rights.

(2) As soon as reasonably practicable, the company must provide the following information to the Commissioners—

(a) the name of every person to whom, or in respect of whom, the distribution specified in paragraph (1) was made;

(b) the address of every such person;

(d) particulars of those persons’ interests in the company, including details of the percentage of rights to the net asset value of the company represented by the shares held by those persons;

(e) the steps the company took to prevent the acquisition of any excessive holding; and

(f) the steps the company has taken, or is taking, to ensure that there is no longer any excessive holding in the company.

Information about possible breaches of conditions of membership of Property AIF regime

Information to be provided to officers of Revenue and Customs

69Z28

(1) This regulation applies if an officer of Revenue and Customs thinks that an open-ended investment company to which this Part applies—

(a) does not meet, or may not meet, a condition specified in Chapter 2 of this Part, or

(b) has not rectified a breach of such a condition.

(2) The officer may serve a notice on the manager of the company.

(3) The notice may require the manager to provide any of the information specified in regulation 69Z26(2) or, as the case may be, regulation 69Z27(2).

(4) The manager must comply with the notice within a period of 28 days beginning with the day on which the notice is served.

Accounting for tax deducted from property income distributions

Payments in an accounting period

69Z29

(1) This regulation applies if—

(a) an open-ended investment company to which this Part applies makes a distribution in an accounting period of the company, and

(b) the distribution includes sums attributed to property income distributions or to PAIF distributions (interest) (or to both) (referred to in this Chapter as a “relevant distribution”).

(2) The company must deliver a return to an officer of Revenue and Customs for each return period—

(a) which falls within the accounting period, and

(b) in which the company makes a relevant distribution.

(3) The return periods are—

(a) the quarters ending on 31st March, 30th June, 30th September and 31st December (the “quarter days”); and

(b) any shorter period which—

(i) starts on the first day of an accounting period and ends with the first or only quarter day in that accounting period;

(ii) begins immediately after the last or only quarter day in that accounting period and ends on the last day of that accounting period; or

(iii) is an accounting period which starts and ends within a quarter.

(4) The company must deliver the return during a period of 14 days beginning with the day immediately following the end of the return period.

(5) The return must show the amount of—

(a) any relevant distributions made by the company in the return period, and

(b) the tax (if any) payable by the company in respect of those payments.

(6) The company must deliver, with the return for the return period which ends on the last day of an accounting period, a reconciliation statement showing, in relation to any distribution made during the accounting period, the amounts (if any) which are attributable to each of paragraphs (a) to (c) of regulation 69Z14 (attribution of distributions).

Collection and payment of tax

69Z30

(1) Tax in respect of a relevant distribution is due at the time by which the return on which the distribution must be included is required to be delivered.

(2) The tax due is equal to the sum which the company is required to deduct from the relevant distribution under—

(a) regulation 69Z22(1) (deduction of tax from property income distributions), and

(b) regulation 69Z23(1) (deduction of tax from PAIF distributions (interest)).

(3) The tax is due from the company making the relevant distribution.

(4) The tax is payable without an officer of Revenue and Customs making any assessment.

Assessments where relevant distribution included in return

69Z31

(1) This regulation applies if any tax in respect of a relevant distribution which is included in a return under this Chapter has not been paid at or before the time mentioned in regulation 69Z30.

(2) An officer of Revenue and Customs may make an assessment on the person who made the relevant distribution.

(3) Tax may be assessed under this regulation whether or not it has been paid when the assessment is made.

Assessments in other cases

69Z32

(1) This regulation applies if an officer of Revenue and Customs thinks—

(a) that there is a relevant distribution which should have been included in a return under this Chapter and which has not been so included, or

(b) that a return under this Chapter is otherwise incorrect.

(2) An officer of Revenue and Customs may make an assessment on the person who made the relevant distribution to the best of the officer’s judgement.

Application of Income Tax Acts provisions about time limits for assessments

69Z33

(1) The provisions of the Income Tax Acts about the time within which an assessment may be made apply to assessments under this Chapter, so far as those provisions refer or relate to—

(a) the tax year for which an assessment is made, or

(b) the year to which an assessment relates.

(2) Paragraph (1) applies despite the fact that an assessment under this Chapter may relate to a return period which is not a tax year.

(3) The provisions of section 36 of TMA 1970 (fraudulent or negligent conduct) about the circumstances in which an assessment may be made out of time apply accordingly on the basis that any such assessment relates to the tax year in which the return period ends.

(4) Section 87 of TMA 1970 (interest on overdue income tax deducted at source) applies for the purposes of a payment due under regulation 69Z30 or an assessment made under regulation 69Z31 or 69Z32.

Certificates of deduction of tax

69Z34

(1) A company making a relevant distribution which is subject to deduction of tax by virtue of regulation 69Z22(1) must furnish the recipient with a statement that complies with condition A or B.

This is subject to paragraph (5).

(2) The duty imposed by paragraph (1) is enforceable at the suit or instance of the recipient.

(3) Condition A is that the statement is in writing showing—

(a) the gross amount of the payment,

(b) the amount of tax deducted, and

(4) Condition B is that the statement is in writing—

(a) showing—

(i) the gross amount of the distribution made to the participant,

(ii) the number and class of units held by the participant in respect of which the distribution is made,

(iii) the net amount of the distribution per unit,

(iv) whether any tax has been deducted from the distribution, and

(v) the date the distribution was made;

(b) providing details to allow the participant to access an electronic means of calculating the amounts that would be shown in a statement provided in accordance with condition A; and

(c) providing the participant with an alternative method of obtaining the details of those amounts without recourse to electronic means.

(5) If an appropriate statement for the purposes of section 234A of ICTA is provided by the company in accordance with regulation 70(4) and (5)—

(a) condition A does not apply, and

(b) the statement required by condition B must be included in the appropriate statement.

(6) Where paragraph (5) applies, “distribution” in regulation 70(4) and (5) shall be taken to include the property income distribution and the statement must show the percentage of the gross distribution attributable to the property income distribution.

Company’s duty to deliver amended return

69Z35

(1) This regulation applies if an open-ended investment company to which this Part applies makes a distribution, and then becomes aware that—

(a) anything which should have been included in a return delivered by the company under these Regulations has not been so included,

(b) anything which should not have been included in a return delivered by the company under these Regulations has been so included, or

(2) The company must deliver an amended return correcting the error to an officer of Revenue and Customs without delay.

(3) If the company delivers an amended return such assessments, adjustments, setoffs or payments or repayments of tax as are necessary for achieving the objective mentioned in paragraph (4) must be made.

(4) The objective is that the resulting liabilities to income and corporation tax (including interest on unpaid or overpaid tax) of the company or any other person are the same as they would have been if a correct return had been delivered.

CHAPTER7 — LEAVING THE PROPERTY AIF REGIME

Termination by notice: company

69Z36

(1) This regulation applies if an open-ended investment company to which this Part applies gives a notice under this regulation specifying a date at the end of which this Part is to cease to apply to the company.

(2) This Part shall cease to apply to the company at the end of that date.

(3) A notice under paragraph (1) must be given in writing to the Commissioners.

(4) The date specified under paragraph (1) must be after the date on which the Commissioners receive the notice.

Termination by notice: Commissioners

69Z37

(1) This regulation applies if the Commissioners give a notice in writing under this paragraph to an open-ended investment company to which this Part applies (a “termination notice”).

(2) This Part shall cease to apply to the company.

(3) The Commissioners may give a termination notice only if—

(a) a provision contained in this Part provides that the Commissioners may give a termination notice,

(b) there is an intentional or negligent breach of a condition in Chapter 2, or

(4) A termination notice must state the reason for it.

(5) If a termination notice is given to an open-ended investment company, this Part shall be taken to have ceased to apply to the open-ended investment company at the end of the accounting period before the accounting period during which the event occurs (or the last event occurs) which caused the Commissioners to give the notice.

Appeal against termination notice

69Z38

(1) An open-ended investment company to which a termination notice is given may appeal ....

(2) The notice of appeal must be given to HM Revenue and Customs within a period of 28 days beginning with the day on which the termination notice is given.

(3) On an appeal that is notified to the tribunal, the tribunal shall determine whether it was just and reasonable for HM Revenue and Customs to give the termination notice.

(4) If the tribunal decides that it was, the tribunal must confirm the notice.

(5) If the tribunal decides that it was not, the tribunal must set aside the notice.

Company ceasing to be authorised etc.

69Z39

(1) This regulation applies if an open-ended investment company to which this Part applies—

(a) ceases to be authorised by the Financial Services Authority,

(b) ceases to be an open-ended investment company, or

(2) This Part shall cease to apply to the company at the end of the date on which the company ceases to be authorised by the Financial Services Authority, to be an open-ended investment company, or to carry on property investment business (as the case may be).

Mergers

69Z40

(1) This regulation applies if an open-ended investment company to which this Part applies—

(a) is party to a merger or takeover, and

(b) as a result, ceases to meet one or more of the conditions for this Part to apply.

(2) On the occurrence of the merger or takeover—

(a) an accounting period of the company shall end at the end of the date of the merger or takeover, and

(b) this Part shall cease to apply to the company at the end of that date.

Effects of cessation

69Z41

(1) The business of F (tax-exempt) shall be treated for the purposes of corporation tax as ceasing immediately before cessation.

(2) Assets which immediately before cessation are involved in the business of F (tax-exempt) shall be treated for the purposes of corporation tax as being sold by F (tax-exempt) immediately before cessation and reacquired immediately after cessation by F (post-cessation).

(3) For the purposes of corporation tax, on cessation one accounting period of F (residual) shall end and an accounting period of F (post-cessation) shall begin.

(4) The sale and reacquisition deemed under paragraph (2) shall not have effect for the purposes of tax in respect of chargeable gains.

(5) For the purposes of CAA 2001, the sale and re-acquisition deemed under paragraph (2)—

(a) shall not give rise to allowances or charges, and

(b) shall not make it possible to make an election under section 198 or 199 of that Act (apportionment).

(6) For the purposes of CAA 2001, anything done by or to F (tax-exempt) before cessation in relation to an asset which is deemed under paragraph (2) to be sold and re-acquired shall be treated after cessation as having been done by or to F (post-cessation).

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

14A

(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 1999 (“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 1999.

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

“working day” means a day other than—a Saturday, Sunday, Christmas Day or Good Friday; ora Bank Holiday in the United Kingdom under the Banking and Financial Dealings Act 1971.

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

PART2A — Qualified Investor Schemes

Tax treatment of qualified investor schemes

14B

(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 9A) 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,

(aa) the provisions of Part 4 of these Regulations,

(b) the provisions of Part 4A of these Regulations,

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

(e) in subsection (1) of section 99 of TCGA 1992 (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 1992.

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

(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) the total amount available for income allocation to participants must only be allocated in accordance with paragraph (1)(b) of regulation 17 (allocation of income) , and

(4) In these Regulations a “qualified investor scheme” means a fund, authorised by the appropriate regulator, in which a statement that the fund is a qualified investor scheme is included in the instrument constituting the scheme.

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The genuine diversity of ownership condition

14C

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Clearance in relation to the genuine diversity of ownership condition

14D

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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

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

69DA

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Manufactured dividends representing property income distributions

69Z24A

(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 ICTA 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 ICTA 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 ICTA 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 1996 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 ICTA has effect in relation to the amount of the manufactured dividend to which paragraph (1) applies.

Interpretation

69Z24D

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

PART 1A — THE GENUINE DIVERSITY OF OWNERSHIP CONDITION

The genuine diversity of ownership condition

9A

(1) For the purposes of these Regulations, the genuine diversity of ownership condition is as follows.

(2) The genuine diversity of ownership condition is that an authorised investment fund must—

(a) meet conditions A to C throughout the accounting period; or

(b) comply with paragraph (8).

(3) Condition A is that the fund documents—

(a) contain a statement that units in the fund will be widely available,

(b) specify the intended categories of investor, and

(c) specify that the manager of the fund must market and make available the units in the fund in accordance with paragraph 9A(6)(a).

(4) Condition B is that neither—

(a) the specification of the intended categories of investor, nor

(b) any other terms or conditions governing participation in the fund, whether or not specified in the fund documents,

have a limiting or deterring effect.

(5) In paragraph (4) a limiting or deterring effect means an effect which—

(a) limits investors to a limited number of specific persons or specific groups of connected persons, or

(b) deters a reasonable investor within the intended categories of investor from investing in the fund.

(6) Condition C is that—

(a) units in the fund must be marketed and made available—

(i) sufficiently widely to reach the intended categories of investors, and

(ii) in a manner appropriate to attract those categories of investors; and

(b) a person who is in an intended category of investor can, upon request to the manager of the fund, obtain information about that fund and acquire units in it.

Condition C is subject to paragraph (7).

(7) Condition C shall be treated as being met even if at the relevant time the fund has no capacity to receive additional investments, unless—

(a) the capacity of the fund to receive investments in it is fixed by the fund documents (or otherwise), and

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

(8) An authorised investment fund ... also meets the genuine diversity of ownership condition if—

(a) an investor in the fund is a unit trust scheme , an offshore fund or another authorised investment fund (a “feeder fund”);

(b) conditions A to C are met in relation to the authorised investment fund after taking into account—

(i) the fund documents relating to the feeder fund, and

(ii) the intended investors in the feeder fund; and

(8A) For the purposes of these Regulations, a long-term asset fund is treated as meeting the genuine diversity of ownership condition if—

(a) the fund’s prospectus was published on or before 9th December 2021, or

(b) at least 70% of the shares or units in the fund are held by one or more relevant investors or by the manager of the fund in the capacity as manager.

(8B) In paragraph (8A), “relevant investor” means any of the persons specified in categories A to E.

(8C) Category A is the trustee or manager of—

(a) an authorised unit trust scheme which meets the genuine diversity of ownership condition, or

(b) a unit trust scheme which—

(i) is authorised under the law of a territory outside the United Kingdom in a way which makes it, under that law, the equivalent of an authorised unit trust scheme, and

(ii) meets conditions A to C or complies with paragraph (8).

(8D) Category B is a company—

(a) which is an open-ended investment company which meets the genuine diversity of ownership condition, or

(b) which—

(i) is incorporated under the law of a territory outside the United Kingdom and is, under that law, the equivalent of an open-ended investment company, and

(ii) meets conditions A to C or complies with paragraph (8).

(8E) Category C is a person acting in the course of a long-term insurance business (that is, the activity of effecting or carrying out contracts of long-term insurance within the meaning of the Financial Services and Markets (Regulated Activities) Order 2001) where—

(a) that person—

(i) is authorised under FISMA 2000 to carry on such business, or

(ii) has an equivalent authorisation under the law of a territory outside the United Kingdom to carry on such business, and

(b) if that person is a company, it is not a close company.

(8F) Category D is a person who cannot be liable for corporation tax or income tax (as relevant) on the grounds of sovereign immunity.

(8G) Category E is the trustee, manager or administrator of a pension scheme (within the meaning given by section 150(1) of the Finance Act 2004) other than an investment regulated pension scheme (within the meaning given by paragraphs 1 and 2 of Schedule 29A to that Act).

(8H) For the purposes of paragraph (8E)(b) (category C), in applying the rules in Chapter 2 of Part 10 of CTA 2010 to determine whether a company is “a close company”, section 442(a) (non-UK resident companies) is to be treated as omitted.

(9) In this Part “fund documents” means—

(a) the instrument constituting the fund, and

(b) the fund’s prospectus in issue for the time being ... .

Clearance in relation to the genuine diversity of ownership condition

9B

(1) An application for clearance that an authorised investment fund meets the genuine diversity of ownership condition (see regulation 9A) may be made in writing to the Commissioners by the manager (or proposed manager) of an authorised investment fund.

(2) An application for clearance must be accompanied by the fund documents in the form in which it is proposed that those documents will apply at the beginning of the first accounting period of the fund for which clearance is sought.

(3) If regulation 9A(2)(b) and (8) applies, an application for clearance by the authorised investment fund must be accompanied by—

(a) the documents specified in paragraph (2), and

(b) the fund documents of the feeder fund in the form in which it is proposed that those documents will apply at the beginning of the first accounting period of the fund for which clearance is sought.

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

(5) The Commissioners must notify the applicant within 28 days of the receipt of the particulars (or, if paragraph (4) applies, of all further particulars required) that they—

(a) give clearance that the fund meets the genuine diversity of ownership condition,

(b) give that clearance subject to conditions, or

(6) An authorised investment fund (and investors in that fund) may not rely on a clearance given under this regulation if—

(a) at the beginning of the first accounting period of the fund to which the clearance relates (and at the beginning of each subsequent accounting period), a relevant statement in the fund documents 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 fund acts or is operated in contravention of a relevant statement in the fund documents,

(d) the fund is operated otherwise than in accordance with condition C of the genuine diversity of ownership condition (see regulation 9A(6)).

(7) If regulation 9A(2)(b) and (8) applies an authorised investment fund (and investors in that fund) may not rely on a clearance given under this regulation if any of sub-paragraphs (a) to (d) of paragraph (6) apply in relation to either the authorised investment fund or the feeder fund.

(8) Paragraph (6)(c) does not apply if the manager of the fund has obtained a clearance given under this regulation which applies to the amendment.

(9) For the purposes of paragraph (6)(c), a material amendment is one that may reasonably be construed as causing, or likely to cause, the fund to fail to meet the genuine diversity of ownership condition in relation to any accounting period.

PART 2B — DIVERSELY OWNED AIFS

Tax treatment of diversely owned AIFs

14E

(1) This regulation applies to an authorised investment fund in respect of an accounting period if—

(a) the fund carries out an investment transaction in that period, and

(b) the fund meets the genuine diversity of ownership condition in relation to that period.

(2) In these Regulations an authorised investment fund to which this regulation applies is referred to as a “diversely owned AIF”.

(3) If the profits or losses, as the case may be, arising from an investment transaction are capital profits, gains or losses, that investment transaction shall be treated as a non-trading transaction of the diversely owned AIF for the purposes of corporation tax.

(4) Chapter 2 of Part 3 of CTA 2009 (income taxed as trade profits) does not apply to capital profits and losses arising from such an investment transaction.

(5) For the purposes of these Regulations “investment transaction” means a transaction specified in regulation 2 of the Investment Transactions (Tax) Regulations 2014.

(6) For the purposes of paragraphs (3) and (4) capital profits, gains or losses arising from an investment transaction in an accounting period are such profits, gains or losses as fall to be dealt with under the heading “net capital gains/losses” in the statement of total return for an accounting period.

(7) For the purposes of paragraph (6), the “statement of total return for an accounting period” has the same meaning as in regulation 12(2).

Meaning of “investment transaction”

14F

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Meaning of relevant contracts: general

14G

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of relevant contract: options

14H

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of relevant contract: futures

14I

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of relevant contract: options and futures - general provisions

14J

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of relevant contract: contract for differences

14K

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14L

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Units in a collective investment scheme

14M

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Carbon emission trading products

14N

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diversely owned AIFs and financial traders: treatment of shares and units

52B

(1) This regulation and regulation 52C apply if a financial trader has held, or holds, shares or units in a diversely owned AIF.

(2) In computing the trading profits or losses of the financial trader for the relevant period, the following amounts must be brought into account—

(a) all distributions received by or credited to the financial trader in respect of such shares or units for the relevant period; and

(b) any amount required to be brought into account under regulation 52C.

(3) In this regulation and in regulation 52D(2) references to distributions are subject to section 130 of CTA 2009 (insurers receiving distributions etc).

(4) In this regulation and in regulations 52C and 52D—

“relevant period” means—in the case of a financial trader within the charge to corporation tax, an accounting period, andin the case of a financial trader within the charge to income tax, a period of account;

“financial trader” has the meaning given by regulation 52E.

Financial traders: amounts to be brought into account in respect of shares or units held in diversely owned AIFs

52C

(1) The only amounts that are to be brought into account in computing the trading profits or losses in respect of the shares or units in the diversely owned AIF for the relevant period are—

(a) amounts that are brought into account in accordance with Cases 1 to 4, and

(b) amounts within regulation 52B(2)(a).

This is subject to section 130 of CTA 2009 (insurers receiving distributions etc) and regulation 52D.

(2) Case 1 applies if the financial trader held the shares or units in a diversely owned AIF at the beginning of the relevant period and holds those shares or units throughout that period.

Where Case 1 applies, the amount to be brought into account is the difference between the market value of the shares or units at the end of the immediately preceding relevant period and the market value of those shares or units at the end of the relevant period.

(3) Case 2 applies if a financial trader acquired shares or units in a diversely owned AIF during the relevant period and retains those shares or units throughout the relevant period.

Where Case 2 applies, the amount to be brought into account is the difference between the market value of the shares or units at the end of the relevant period and the acquisition cost of those shares or units.

(4) Case 3 applies if the financial trader held shares or units in a diversely owned AIF at the beginning of the relevant period and disposes of those shares or units during that period.

Where Case 3 applies the amount to be brought into account is the difference between the market value of the shares or units at the end of the immediately preceding relevant period and the disposal value of the shares or units.

(5) Case 4 applies if the financial trader acquires shares or units in a diversely owned AIF during the relevant period and disposes of those shares or units during that period.

Where Case 4 applies the amount to be brought into account is the difference between the acquisition cost of the shares or units and the disposal value of those shares or units.

(6) In this regulation—

“acquisition cost” means the value of the consideration given for the acquisition of the shares or units;

“disposal value” means the value of the consideration received for the disposal of the shares or units;

“market value” means—in the case of shares or units in a diversely owned AIF where both the buying and selling prices of units are published regularly by the manager of the fund, an amount equal to the buying price (that is the lower price) so published on any particular date or, if none were published on that date, on the latest date before;in the case of shares or units in a diversely owned AIF where a single price is published regularly by the manager of the fund, the price so published on any particular date, or if none were published on that date, on the latest date before.

Shares and units not within regulation 52C

52D

(1) Regulation 52C does not apply in respect of any shares or units in a diversely owned AIF in relation to which—

(a) conditions A and B are both satisfied, or

(b) condition C is satisfied.

(2) Condition A is that the shares or units in the diversely owned AIF form part of the financial trader’s stock in trade and all the profits and losses, including distributions, arising in relation to the shares or units in the diversely owned AIF are included in the computation of the financial trader’s trading profits for the relevant period.

(3) Condition B is that the shares or units in the diversely owned AIF are accounted for under generally accepted accounting practice on the basis of fair value accounting.

(4) Condition C is that the shares or units in the diversely owned AIF are a relevant holding in respect of which the provisions of section 490 of CTA 2009 apply in relation to the financial trader.

(5) In paragraph (4) “relevant holding” means—

(a) any rights under a unit trust scheme;

(b) a material interest in an offshore fund; or

Meaning of financial trader

52E

(1) In regulations 52B, 52C and 52D “financial trader” means a person who is carrying on a business which is—

(a) a banking business,

(b) an insurance business, or

(c) a business consisting wholly or in part of dealing in trading assets such that any profit on such assets would form part of the trading profits of that business.

This paragraph is subject to paragraphs (2) and (3).

(2) “An insurance business” in paragraph (1)(b) does not include life assurance business carried on by an insurance company and in the event that such a company carries on both life assurance business and any other insurance business that company will not be a financial trader in respect of the life assurance business.

(3) If—

(a) a financial trader, “A”, directly or indirectly transfers trading assets to a diversely owned AIF under or as part of an arrangement which has an unallowable purpose, and

(b) a connected person, “B”—

(i) holds shares or units in that diversely owned AIF at the time of the transfer; or

(ii) directly or indirectly acquires shares or units in that diversely owned AIF at a later time,

B is treated as being a financial trader in relation to those shares or units.

(4) In paragraphs (1) and (3) “trading assets” means—

(a) stocks or shares;

(b) a relevant contract within regulation 14G;

(d) units in a collective investment scheme within regulation 14M;

(e) securities within regulation 14F;

(f) foreign currency; or

(g) a carbon emission trading product within regulation 14N,

a profit on the sale of which would form part of the trading profits of the financial trader.

(5) An arrangement includes any scheme, understanding or transaction of any kind, whether or not legally enforceable and whether involving a single transaction or two or more transactions.

(6) An arrangement has an unallowable purpose if the main purpose or one of the main purposes for either A or B being party to the arrangement is to obtain a tax advantage or an income tax advantage for any person.

(7) In paragraph (6)—

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