Commentary

D1.788 Loan relationships—Holding in collective investment schemes

Corporate tax
Corporate tax | Commentary

D1.788 Loan relationships—Holding in collective investment schemes

Corporate tax | Commentary

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:

  1.  

    •     a unit trust scheme.

  2.  

    •     an open ended investment company (OEIC) (as defined in CTA 2010, ss 613, 615(3)) and

  3.  

    •     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

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