CFM14002 - Collective investment schemes: AIFs: loan relationships

AIFs: (AUTs & OEICs):: loan relationships

This guidance describes the post FA 2002 provisions for the taxation of loan relationships, derivative contracts and forex.

Authorised Unit Trusts (AUTs) are treated as UK resident companies for corporation tax purposes. Special taxation rules apply to AUTs and open-ended Investment companies (OEICs), which are UK resident companies. AUTs and OEICs are known collectively as Authorised Investment Funds (AIFs) and, for both, gains are not chargeable gains for corporation tax (TCGA92/S100 (1)).

For most companies the introduction of the loan relationships regime resulted in all profits, gains and losses on loan relationships coming into the corporation tax computation. The regime, in general, makes no distinction between capital and revenue profits (see FA96/S84). Special provisions were accordingly required for AUTs and OEICs in respect of their creditor relationships to maintain the exemption of capital profits.

These special provisions are currently in Regulation 10 SI 2006/964 (The Authorised Investment Funds (Tax) Regulations 2006):”the AIF Regulations”. They were originally in FA96/SCH10/PARAs 2A & 2B, now repealed.

FA 2002 brought AIFs within the revised 2002 loan relationship regime on the basis of a special regime for creditor relationship capital profits and losses. The intention was to ease the compliance burden for managers of AUTs and OEICs when preparing their tax computations by aligning the tax treatment of the funds more closely with fund accounting and by removing much of the complexity associated with the pre FA 2002 position..

Regulation 10 says that in computing the profits, gains and losses from the creditor loan relationships of an authorised investment fund any capital profits, gains and losses are to be excluded.

Capital profits gains and losses are defined as those dealt with under either of the headings

• net gains/losses on investments during the period or
• other gains/losses

in the statement of total return for the accounting period prepared in accordance with the Statement of Recommended Accounting Practice (SORP) relating to Authorised Investment Funds issued by the Investment Management Association. The latest version of this was issued on 5 January 2006 effective for accounting periods beginning on or after 1 January 2006.

Prior to the AIF Regulations FA96/SCH10/PARAS2A&2B referred to the SORPs that applied to AUTs and OEICs respectively..

Debtor loan relationships are not affected by the SORP-based rule. Debtor loan relationships are fully subject to the loan relationships regime in the same way as for other companies.

Please contact CT & VAT Technical where advice is needed on the pre-FA 2002 rules.