CFM14010b - Collective investment schemes: company holdings: qualifying and non-qualifying investments
Non-qualifying investments test
This guidance describes the post FA 2002 provisions for the
taxation of loan relationships, derivative contracts and
forex.
A unit trust, offshore fund or OEIC fails the non-qualifying
investments test at any time when the market value of its
qualifying investments exceeds 60 per cent of the market value of
all its investments.
Qualifying investments means, for accounting periods to which
FA 2002 applies:
- money placed at interest
- securities
- shares in a building society
- qualifying holdings in a unit trust or an offshore fund or an OEIC
- derivative contracts whose underlying subject matter consists wholly of any one or more of the matters referred to in paragraphs (a) to (d) above, and/or currency.
- contracts for differences whose underlying subject matter consists wholly of any one or more of the following: interest rates, creditworthiness, and currency;
- derivative contracts not within paragraph (e) or (f) where there is a hedging relationship between the derivative contract and an asset within regulations (a) to (d) above;
- alternative finance arrangements.
(e) and (f) above were newly introduced by FA 2002 and modified
by The Unit Trust Schemes and Offshore Funds (Non-Qualifying
Investments Test) Order 2006 (SI 2006/981).
(g) and (h) above were newly introduced by SI 2006/981).
A holding in a unit trust, offshore fund or OEIC is a
qualifying holding if at any time in the accounting period that
unit trust, fund or OEIC would itself fail the non-qualifying
investments test.
“Investments” does not include cash awaiting
investment.
Since an OEIC is a company and an AUT is treated as a company
for corporation tax purposes either entity could also be subject to
FA96/SCH10/PARA4 in respect of its own holdings in other unit
trusts, offshore funds or OEICs. However where under its applicable
accounting standard capital profits, gains or losses have been
capitalised debits and credits properly taken to capital are
excluded. The operation of Para 4 in such a case is broadly to put
the AUT/OEIC or ITC in a similar position as if it had invested
directly in the underlying loan relationships.
Please contact CT & VAT Technical where advice is
needed on the pre-FA 2002 rules.
