D1.788 Loan relationships—Holding in collective investment schemes
A company's rights in the following are not within the definition of a loan relationship:
• a unit trust scheme.
• an open ended investment company (OEIC) (as defined in CTA 2010, ss 613, 615(3)) and
• an offshore fund
An OEIC may take the form of an umbrella company, which is a single company whose investments are pooled separately in sub-funds (usually with different investment objectives) and in which the shareholders may exchange their rights in one sub-fund for those in another. The legislation provides that each sub-fund is treated as a separate OEIC, and a person having rights in one sub-fund is treated as holding shares in the OEIC represented by that sub-fund1. An OEIC may issue shares of a single class in two denominations; if a person holds shares of both denominations, they are treated as shares of the same class2
Because the creditor relationships of a unit trust, an OEIC and an offshore fund are also excluded from the loan relationship provisions (see D1.765), without special provisions a company could avoid the application of those provisions by investing in such collective investment schemes.
In specified circumstances, a company's investment in such schemes is treated as if the holdings were rights under a creditor relationship and any interest and distributions fall within the loan relationship rules3. (Note if a participant has a holding in a qualified investor scheme (ie a fund, authorised by the Financial Conduct Authority (formerly Financial Services Authority), in