The Authorised Investment Funds (Tax) Regulations 2006

PART 2 U.K. THE TAX TREATMENT OF AUTHORISED INVESTMENT FUNDS

Loan relationships and derivative contracts: exclusion of capital profits, gains or losses U.K.

General rule for loan relationships: exclusion of capital profits, gains or losses U.K.

10.—(1) This regulation applies if any profits, gains or losses arising to an authorised investment fund from a creditor relationship in an accounting period are capital profits, gains or losses.

(2) For the purposes of Chapter 2 of Part 4 of FA 1996 M1 (loan relationships) those profits, gains or losses must not be brought into account as credits or debits.

(3) Regulation 12 explains what is meant by “capital profits, gains or losses” in the case of an authorised investment fund that prepares accounts in accordance with UK generally accepted accounting practice.

[F1 (4) This regulation is subject to regulation 14B (tax treatment of qualified investor schemes.]

Textual Amendments

F1 Reg. 10(4) inserted (1.1.2009) by The Authorised Investment Funds (Tax) (Amendment No. 3) Regulations 2008 (S.I. 2008/3159), regs. 1(1), 5

Marginal Citations

M1 1996 c. 8.

General rule for derivative contracts: exclusion of capital profits, gains or losses U.K.

11.—(1) This regulation applies if any profits, gains or losses arising to an authorised investment fund from a derivative contract in an accounting period are capital profits, gains or losses.

(2) For the purposes of Schedule 26 to FA 2002 M2 (derivative contracts) those profits, gains or losses must not be brought into account as credits or debits.

(3) Regulation 12 explains what is meant by “capital profits, gains or losses” in the case of an authorised investment fund that prepares accounts in accordance with UK generally accepted accounting practice.

[F2 (4) This regulation is subject to regulation 14B (tax treatment of qualified investor schemes).]

Textual Amendments

F2 Reg. 11(4) inserted (1.1.2009) by The Authorised Investment Funds (Tax) (Amendment No. 3) Regulations 2008 (S.I. 2008/3159), regs. 1(1), 6

Marginal Citations

M2 2002 c. 23.

Accounts prepared in accordance with UK generally accepted accounting practice U.K.

12.—(1) In the case of an authorised investment fund that prepares accounts in accordance with UK generally accepted accounting practice, capital profits, gains or losses arising from a creditor relationship in an accounting period, or capital profits, gains or losses arising from a derivative contract in an accounting period, are such profits, gains or losses as fall to be dealt with under [F3 the heading “net capital gains/losses”] in the statement of total return for the accounting period.

(2) For the purposes of paragraph (1), the statement of total return for an accounting period is the statement of total return which, in accordance with the Statement of Recommended Practice used for the accounting period, must be included in the accounts contained in the annual report of the authorised investment fund which deals with the accounting period.

F4 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F3 Words in reg. 12(1) substituted (1.1.2009) by The Authorised Investment Funds (Tax) (Amendment No. 3) Regulations 2008 (S.I. 2008/3159), regs. 1(1), 7

F4 Reg. 12(3) omitted (with effect in accordance with reg. 1(2) of the amending S.I.) by virtue of The Authorised Investment Funds (Tax) (Amendment) Regulations 2010 (S.I. 2010/294), regs. 1(1), 5

F5 ... Interest distributions and deficits U.K.

Textual Amendments

F5 Words in reg. 12A cross-heading omitted (with effect in accordance with reg. 1(2)(3) of the amending S.I.) by virtue of The Authorised Investment Funds (Tax) (Amendment) Regulations 2015 (S.I. 2015/485), regs. 1(1), 2(2)

[F6 Deduction of expenses U.K.

12A.   Where an authorised investment fund makes an interest distribution for a distribution period, the amount that can be deducted under Step 2 in section 4(2) of CTA 2010 (amounts that can be relieved against the company’s total profits of the period) cannot exceed an amount that would reduce the total profits chargeable to corporation tax for the accounting period in which the last day of the distribution period falls to below the total amount chargeable to corporation tax in accordance with Part 4 of CTA 2009 for that accounting period.]

Textual Amendments

F6 Reg. 12A inserted (with effect in accordance with reg. 1(2)(3) of the amending S.I.) by The Authorised Investment Funds (Tax) (Amendment) Regulations 2015 (S.I. 2015/485), regs. 1(1), 2(3)

Treatment of interest distributions for purposes of loan relationships U.K.

13.—(1) Chapter 2 of Part 4 of FA 1996 (loan relationships) has effect in relation to an authorised investment fund and to an interest distribution paid by that fund as it would have effect if the interest distribution were interest payable on a loan to the authorised investment fund and were, accordingly, interest under a loan relationship to which the authorised investment fund were a party.

[F7 (1A) But paragraph (1) only applies to the extent that the interest distribution is derived from income [F8 other than income chargeable to corporation tax in accordance with Part 4 of CTA 2009 and] in respect of which the legal owner is charged to corporation tax.]

(2) For the purposes of these Regulations, an interest distribution is treated as paid if it is credited to the capital part of the scheme property of an authorised investment fund on behalf of a participant in respect of the participant's accumulation units.

(3) This regulation is subject to regulation 14 [F9 and regulation 14B (tax treatment of qualified investor schemes)].

[F10 (4) In this regulation an “interest distribution” includes a TEF distribution (non-dividend) (see regulation 69Z61(3)).]

Textual Amendments

F7 Reg. 13(1A) substituted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Authorised Investment Funds (Tax) (Amendment) Regulations 2012 (S.I. 2012/519), regs. 1(1), 3

F8 Words in reg. 13(1A) inserted (with effect in accordance with reg. 1(2)(3) of the amending S.I.) by The Authorised Investment Funds (Tax) (Amendment) Regulations 2015 (S.I. 2015/485), regs. 1(1), 2(4)

F9 Words in reg. 13(3) inserted (1.1.2009) by The Authorised Investment Funds (Tax) (Amendment No. 3) Regulations 2008 (S.I. 2008/3159), regs. 1(1), 8

F10 Reg. 13(4) inserted (1.9.2009) by The Authorised Investment Funds (Tax) (Amendment) Regulations 2009 (S.I. 2009/2036), regs. 1, 7

Treatment of deficits on loan relationships U.K.

14.  Section 83(2)(c) of FA 1996 (carrying back of non-trading deficit on loan relationships) shall not have effect in relation to the loan relationships of an authorised investment fund (so that, accordingly, if for any accounting period there is a deficit on the loan relationships of the authorised investment fund, the deficit may not be carried back to be set off against profits for earlier accounting periods).

[F11 This is subject to regulation 14B (tax treatment of qualified investor schemes).]

Textual Amendments

F11 Words in reg. 14 inserted (1.1.2009) by The Authorised Investment Funds (Tax) (Amendment No. 3) Regulations 2008 (S.I. 2008/3159), regs. 1(1), 9

[F12 Authorised investment funds having interests in offshore non-reporting funds U.K.

Textual Amendments

F12 Regs. 14ZA-14ZC and cross-heading inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Authorised Investment Funds (Tax) (Amendment) Regulations 2011 (S.I. 2011/244), regs. 1(1), 4 (with reg. 8)

Interests in offshore non-reporting funds: general U.K.

14ZA.— (1) Regulation 14ZB applies if—

(a) an authorised investment fund disposes of an asset which is an interest in a non-reporting fund (“the asset”); and

(b) the conditions in paragraph (2) are satisfied for the period beginning with the date on which the authorised investment fund acquired the asset and ending on the date of the disposal.

(2) The conditions are that—

(a) the authorised investment fund has access to the accounts of the non-reporting fund,

(b) the authorised investment fund had sufficient information about the non-reporting fund referred to in paragraph (1)(a) to enable it to prepare computations of reportable income for the non-reporting fund for every accounting period which, if the non-reporting fund were a reporting fund, would be a reporting period ending within the period mentioned in paragraph (1)(b),

(c) the authorised investment fund has prepared such computations, and

(d) any excess of the authorised investment fund’s share of the reportable income of the non-reporting fund over the authorised investment fund’s share of the distributions made by the non-reporting fund is included in the amount available for income allocation by the authorised investment fund for each reporting period of the authorised investment fund which falls within the period mentioned in paragraph (1)(b).

(3) An authorised investment fund has an interest in a non-reporting fund if and to the extent that it has an interest in such a fund for the purposes of the Offshore Funds Regulations.

(4) For the purposes of the computations mentioned in paragraph (2)(b), regulation 80 of the Offshore Funds Regulations applies if (and only if) the non-reporting fund is a UCITS fund.

(5) In this regulation, “UCITS fund” has the same meaning as in regulation 12 of the Offshore Funds Regulations and “reporting period” has the same meaning as in regulation 91 of those Regulations.

Treatment of disposal of interest in non-reporting fund U.K.

14ZB.   No tax shall be charged on the authorised investment fund under regulation 17 of the Offshore Funds Regulations on the disposal by the authorised investment fund of an asset which is an interest in a non-reporting fund at the time of the disposal.

Treatment of interest in non-reporting fund: cases where the conditions in regulation 14ZA(2) would not be satisfied U.K.

14ZC.— (1) This regulation applies in relation to an asset of an authorised investment fund (“the asset”) which—

(a) is an interest in a non-reporting fund, but

(b) in relation to which the conditions in regulation 14ZA(2) would not (apart from this regulation) be satisfied for the whole of the period specified in regulation 14ZA(1)(b) in relation to the asset.

(2) Paragraph (4) applies if the authorised investment fund, in relation to the asset, reasonably expects to satisfy the conditions in regulation 14ZA(2) for the period beginning with a date to be determined in accordance with paragraph (3) (“the deemed start date”) and ending on the date of the disposal of the asset.

(3) The deemed start date is a date to be determined by the authorised investment fund but which must not be earlier than 6th March 2011.

(4) The authorised investment fund is treated for all purposes (including for the purposes of determining the beginning of the period mentioned in regulation 14ZA(1)(b)) as if it had, on the deemed start date, disposed of the asset (and not satisfied the conditions in regulation 14ZA(2)) and immediately reacquired the asset for a consideration equal to its market value on the deemed start date.

(5) The authorised investment fund must notify the Commissioners of the deemed start date by making an appropriate entry in its tax return for the accounting period in which the deemed start date falls.]

[F13 Authorised investment funds with limited investment powers – stamp duty reserve tax U.K.

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)

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

(b)

a 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.]

Textual Amendments

F13 Reg. 14A inserted (1.1.2009) by The Authorised Investment Funds (Tax) (Amendment No. 3) Regulations 2008 (S.I. 2008/3159), regs. 1(1), 10

[F14 Treatments applying to authorised investment funds with specific investment purposes U.K.

Textual Amendments

F14 Reg. 14ZD and cross-heading inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Authorised Investment Funds (Tax) (Amendment No. 2) Regulations 2011 (S.I. 2011/2192), regs. 1(1), 4

Index tracking funds U.K.

14ZD.— (1) This regulation applies if—

(a) an authorised investment fund has an interest in a non-reporting fund, and

(b) the conditions in paragraph (2) are met throughout the relevant period.

(2) The conditions are that—

(a) in accordance with either the authorised investment fund’s prospectus or the instrument constituting the authorised investment fund, the aim of the authorised investment fund’s investment policy is to replicate the performance of a qualifying index,

(b) the main purpose of the investment in the non-reporting fund is to represent the composition of the qualifying index, and

(c) the capital and income returns of the authorised investment fund replicate as closely as practicable the returns of the investments comprised in the qualifying index.

(3) For the purposes of paragraph (2) an index is a “qualifying index” if—

(a) it is based solely on the value of securities listed on a recognised stock exchange or admitted to trading on a regulated market,

(b) either [F15 the Financial Conduct Authority] or an authority responsible for regulating offshore funds recognises the index on the basis that—

(i) its composition is sufficiently diverse,

(ii) it represents an adequate benchmark for the market to which it refers, and

(iii) it is published in such a way that it is widely available, and

(c) it is calculated and published by a body which is managed independently from the management of the authorised investment fund.

(4) Regulation 17 of the Offshore Funds Regulations does not apply in respect of a disposal of the interest in the non-reporting fund by the authorised investment fund.

(5) In this regulation “the relevant period” means the period—

(a) starting on the day the authorised investment fund acquires the interest in the non-reporting fund (or any part of it), and

(b) ending on the day of the disposal of the interest.

(6) In this regulation—

F16 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F17 (b) “regulated market” means—

(i) a UK regulated market within the meaning given by Article 2.1(13A) of Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments,

(ii) an EU regulated market within the meaning given by Article 2.1(13B) of that Regulation, and

[F18 (iii) a Gibraltar regulated market within the meaning given by Article 26(11)(b)(i) of that Regulation.]]]

Textual Amendments

F15 Words in reg. 14ZD(3)(b) substituted (31.12.2020) by The Taxes (Amendments) (EU Exit) Regulations 2019 (S.I. 2019/689), regs. 1, 28(2)(a) (with regs. 39-41); 2020 c. 1, Sch. 5 para. 1(1)

F16 Reg. 14ZD(6)(a) and word omitted (31.12.2020) by virtue of The Taxes (Amendments) (EU Exit) Regulations 2019 (S.I. 2019/689), regs. 1, 28(2)(b)(i) (with regs. 39-41); 2020 c. 1, Sch. 5 para. 1(1)

F17 Reg. 14ZD(6)(b) substituted (31.12.2020) by The Taxes (Amendments) (EU Exit) Regulations 2019 (S.I. 2019/689), regs. 1, 28(2)(b)(ii) (with regs. 39-41); 2020 c. 1, Sch. 5 para. 1(1)

F18 Reg. 14ZD(6)(b)(iii) substituted (31.12.2020) by The Taxes (Amendments) (EU Exit) (No. 2) Regulations 2019 (S.I. 2019/818), regs. 1(3), 9(2); 2020 c. 1, Sch. 5 para. 1(1)

Authorised investment funds with limited investment powers – stamp duty reserve tax U.K.

F19 14A.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F19 Reg. 14A omitted (with effect in accordance with reg. 1(2) of the amending S.I.) by virtue of The Stamp Duty Reserve Tax (Finance Act 1999, Schedule 19) (Consequential Amendments) Regulations 2014 (S.I. 2014/1932), regs. 1(1), 4(2)