CFM14007 - Collective investment schemes: AIFs: consequential repeals

AIFs: AUTs and OEICs: consequential repeals

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

No transitional provisions were necessary on the introduction of the derivatives contract regime.

However, bringing AUTs and OEICs within the new regime meant that some special provisions that previously applied to them could be repealed. These included ICTA88/SCH5AA/PARA1 (2)(c), which exempted AUTs and OEICs from SCH5AA (guaranteed returns on transactions in futures and options) and ICTA88/S468AA, which provided that profits of an AUT or OEIC from futures and options could not be taxed as trading income.

Subsequent to those repeals the Inland Revenue, the Investment Management Association and the Futures and Options Association agreed a joint statement, reproduced in the August 2002 Tax Bulletin (TB60). This explained the rationale for those repeals within the context of the reforms as a whole. TB60 was updated in December 2005 by TB80. The update was a response to concerns raised by the fund management industry that the approach inTB60 may change following the publication by the Financial Services Authority (FSA) of a new Sourcebook (COLL) for authorised funds in March 2004.

TB80 confirmed that the approach inTB60 had not changed and reiterated that there remains a general and prevailing assumption that AIFs will not be conducting a trade.

Where a fund returns a profit from a derivative contract that is to be dealt with under Regulation 11 of the AIF Regulations, that profit can only be charged under the rules of the Regulations. If, therefore, it is a capital profit, it cannot be taken into account as a taxable credit. There is no question of it being taxable under any other provision, including Case I of Schedule D. Regulation 11 SI 2006/964 makes this clear.

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