The Authorised Investment Funds (Tax) Regulations 2006

• Citation: S.I. 2006/964
• Sections: 291

Section 1 Citation, commencement and effect

(1) These Regulations may be cited as the Authorised Investment Funds (Tax) Regulations 2006, and shall come into force on 1st April 2006.

(2) These Regulations have effect—

(a) for the purposes of income tax—

(i) for the tax year 2006-07 and subsequent tax years, and

(ii) for distributions made on or after 6th April 2006;

(b) for the purposes of corporation tax—

(i) on income, for accounting periods beginning on or after 1st April 2006,

(ii) on chargeable gains, in relation to disposals made on or after 1st April 2006, and

(iii) for distributions made on or after 1st April 2006; and

(c) for the purposes of capital gains tax, in relation to disposals made on or after 6th April 2006.

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Section 2 Structure of these Regulations

The structure of these Regulations is as follows—

this Part contains preliminary provisions and provides for interpretation;

Part 1A deals with the genuine diversity of ownership condition;

Part 2 deals with the tax treatment of authorised investment funds;

Part 2A deals with qualified investor schemes

Part 2B deals with diversely owned AIFs;

Part 3 deals with distributions made by authorised investment funds;

Part 4 deals with the treatment of participants in authorised investment funds;

Part 4A deals with Property AIFs;

Part 4B deals with Tax Elected Funds;

Part 5 deals with compliance;

Part 6 contains further provisions relating to authorised investment funds;

Part 6A contains provisions relating to Funds Investing in Non-Reporting Offshore Funds ( FINROFs );

Part 7 contains consequential amendments and modifications of enactments; and

Part 8 contains final provisions.

Section 3 Definition of “authorised investment funds”

In these Regulations “ authorised investment funds ” means—

(a) open-ended investment companies, and

(b) authorised unit trust schemes.

Section 4 Definition of “open-ended investment company”

In these Regulations “ open-ended investment company ” means a company incorporated in the United Kingdom to which section 236 of FISMA 2000 applies.

Section 5 Interpretation of expressions relating to authorised unit trust schemes

(1) In these Regulations “ unit trust scheme ” has the meaning given by section 237 of FISMA 2000.

(2) For the purposes of these Regulations a unit trust scheme is authorised in relation to an accounting period if an order under section 243 of FISMA 2000 is in force in relation to that scheme during the whole or part of that accounting period.

(3) In these Regulations “ unit holder ” means a person entitled to a share of the investments subject to the trusts of a unit trust scheme.

Section 6 Further definitions generally relevant for authorised investment funds

(1) In these Regulations the “ legal owner ” means—

(a) in relation to an open-ended investment company, the open-ended investment company, and

(b) in relation to an authorised unit trust, the trustees of the trust.

(2) In these Regulations the “ scheme property ” means—

(a) in relation to an open-ended investment company, the property subject to the collective investment scheme constituted by the company, and

(b) in relation to an authorised unit trust, the property subject to the collective investment scheme constituted by the trust.

(3) In these Regulations the “ manager ” means—

(a) in relation to an open-ended investment company, the authorised corporate director, and

(b) in relation to an authorised unit trust, the person who is the manager of the trust for the purposes of Chapter 3 of Part 17 of FISMA 2000 (authorised unit trust schemes).

(4) In these Regulations, unless a contrary intention appears, “ units ” means the rights or interests (however described) of the participants in the authorised investment fund.

(5) In these Regulations “ accumulation unit ” means—

(a) in relation to an open-ended investment company, a share in the company in respect of which income is credited periodically to the capital part of the scheme property of the company, and

(b) in relation to an authorised unit trust, a unit in the trust in respect of which income is credited periodically to the capital part of the scheme property of the trust.

(6) In these Regulations a “ participant ”, in relation to an authorised investment fund, means a beneficial owner of units in the fund, except where the units are held on trust (other than a bare trust) or are comprised in the estate of a deceased person, and in such a case the participant, in relation to the fund, means the trustees of the trust, or, as the case may be, the deceased's personal representatives.

(7) In these Regulations “instrument constituting the fund” means—

(a) in relation to an open-ended investment company, the instrument of incorporation, and

(b) in relation to an authorised unit trust scheme, the trust deed.

(8) In these Regulations “genuine diversity of ownership condition” has the meaning given by regulation 9A.

Section 7 Umbrella companies and umbrella schemes: interpretation

(1) In these Regulations “ umbrella company ” has the meaning given by section 468A(4) of ICTA , and a reference to a part of an umbrella company is to be construed in accordance with that provision.

(2) For the purposes of these Regulations each of the parts of an umbrella company is regarded as an open-ended investment company and the umbrella company as a whole shall not be so regarded.

(3) In relation to a part of an umbrella company, any reference—

(a) to investments or to scheme property of an open-ended investment company has effect as a reference to such of the investments or to such of the scheme property as under the arrangements form part of the separate pool to which that part of the umbrella company relates, and

(b) a person for the time being having rights in that part is regarded as the owner of shares in the open-ended investment company which that part is regarded as being by virtue of paragraph (2), and not as the owner of shares in the umbrella company itself.

(4) In relation to a part of an umbrella company, any references in these Regulations to the instrument of incorporation or the prospectus in issue for the time being ... of an open-ended investment company have effect, for the purposes of these Regulations, as references to such parts of the instrument of incorporation or of that prospectus ... as apply to that part of the umbrella company.

(5) In these Regulations “ umbrella scheme ” has the meaning given by section 468(8) of ICTA, and a reference to a part of an umbrella scheme is to be construed in accordance with that provision.

(6) For the purposes of these Regulations each of the parts of an umbrella scheme is regarded as an authorised unit trust and the umbrella scheme as a whole is not regarded as an authorised unit trust or as any other form of collective investment scheme.

(7) In relation to a part of an umbrella scheme, any reference—

(a) to investments or to scheme property subject to the trusts of an authorised unit trust has effect as a reference to such of the investments or to such of the scheme property as under the arrangements form part of the separate pool to which that part of the umbrella scheme relates, and

(b) to a unit holder, has effect as a reference to a person for the time being having rights in that separate pool.

(8) In relation to a part of an umbrella scheme, any references in these Regulations to the prospectus in issue for the time being ... of an authorised unit trust have effect, for the purposes of these Regulations, as references to such parts of that prospectus ... as apply to that part of the umbrella scheme.

Section 8 General interpretation

In these Regulations—

“appropriate regulator” in relation to a person means—

in a case where the person is a PRA -authorised person (within the meaning of the Financial Services and Markets Act 2000), the Prudential Regulation Authority or the Financial Conduct Authority;

in any other case, the Financial Conduct Authority;

“ authorised corporate director ”, in relation to an open-ended investment company, means a corporate director of the company acting in the capacity as the director having responsibility for the management of its scheme property, being an authorised person within the meaning given by section 31(2) of FISMA 2000, or if there is no such director, the person for the time being having responsibility for the management of the scheme property of the company and acting in that capacity;

“ collective investment scheme ” has the meaning given by section 235 of FISMA 2000;

the “ Commissioners ” means the Commissioners for Revenue and Customs;

“connected person” has the meaning given in—

sections 993 and 994 of ITA 2007 (connected persons) in the case of a person chargeable to income tax, and

section 839 of ICTA (connected persons) in the case of a person chargeable to corporation tax;

“ creditor relationship ” has the meaning given by section 103(1) of FA 1996 ;

“ derivative contract ” means—

a contract which is a derivative contract within the meaning of Schedule 26 to FA 2002 , or

a contract which is, in the accounting period in question, treated as if it were a derivative contract by virtue of paragraph 36 of that Schedule (contracts relating to holdings in unit trust schemes, open-ended investment companies and offshore funds);

“investments” do not include cash awaiting investment;

“ net asset value ” means the value of the assets of the authorised investment fund, after the deduction of specified liabilities;

“non-reporting fund” has the same meaning as in regulation 4(2) of the Offshore Funds Regulations;

“offshore fund” means a fund within the meaning of section 355 of the Taxation (International and Other Provisions) Act 2010;

“ Offshore Funds Regulations ” means the Offshore Funds (Tax) Regulations 2009;

“ owner of shares ”, in relation to an open-ended investment company, means a beneficial owner of shares in the company, except where the shares are held on trust (other than a bare trust) or are comprised in the estate of a deceased person, and in such a case the owner of shares, in relation to the company, means the trustees of the trust, or, as the case may be, the deceased's personal representatives;

“prospectus” includes a proposed prospectus, supplements to a prospectus and supplements to a proposed prospectus;

“reportable income” has the same meaning as in Chapter 5 of Part 3 of the Offshore Funds Regulations;

“ reporting date ” means the final day of each annual and each half-yearly accounting period of the authorised investment fund;

“reporting fund” means an offshore fund to which Part 3 of the Offshore Funds Regulations applies

“ residence declaration ” is to be construed in accordance with regulation 31;

“Statement of Recommended Practice” means, in relation to any accounting period for which it is required or permitted to be used, the Statement of Recommended Practice relating to authorised investment funds issued by the Investment Management Association in November 2008;

“tax year”—

in relation to income tax, means a year of assessment within the meaning of ICTA (see section 832(1) of that Act), and

in relation to capital gains tax, means a year of assessment within the meaning of TCGA 1992 (see section 288(1) of that Act).

“tribunal” means the First-tier Tribunal or, where determined by or under Tribunal Procedure Rules, the Upper Tribunal.

Section 9 Abbreviations and general index

(1) The Schedule to these Regulations (which contains abbreviations and defined expressions that apply for the purposes of these Regulations) has effect.

(2) Part 1 of the Schedule gives the meaning of the abbreviated references to Acts used in these Regulations.

(3) Part 2 of the Schedule lists the places where expressions used in these Regulations are defined or otherwise explained—

(a) in these Regulations for the purposes of these Regulations, or

(b) in these Regulations for the purposes of a Part or Chapter of these Regulations.

Section 9A The genuine diversity of ownership condition

(1) For the purposes of these Regulations, the genuine diversity of ownership condition is as follows.

(2) The genuine diversity of ownership condition is that an authorised investment fund must—

(a) meet conditions A to C throughout the accounting period; or

(b) comply with paragraph (8).

(3) Condition A is that the fund documents—

(a) contain a statement that units in the fund will be widely available,

(b) specify the intended categories of investor, and

(c) specify that the manager of the fund must market and make available the units in the fund in accordance with paragraph 9A(6)(a).

(4) Condition B is that neither—

(a) the specification of the intended categories of investor, nor

(b) any other terms or conditions governing participation in the fund, whether or not specified in the fund documents,

have a limiting or deterring effect.

(5) In paragraph (4) a limiting or deterring effect means an effect which—

(a) limits investors to a limited number of specific persons or specific groups of connected persons, or

(b) deters a reasonable investor within the intended categories of investor from investing in the fund.

(6) Condition C is that—

(a) units in the fund must be marketed and made available—

(i) sufficiently widely to reach the intended categories of investors, and

(ii) in a manner appropriate to attract those categories of investors; and

(b) a person who is in an intended category of investor can, upon request to the manager of the fund, obtain information about that fund and acquire units in it.

Condition C is subject to paragraph (7).

(7) Condition C shall be treated as being met even if at the relevant time the fund has no capacity to receive additional investments, unless—

(a) the capacity of the fund to receive investments in it is fixed by the fund documents (or otherwise), and

(b) a pre-determined number of specific persons or specific groups of connected persons make investments in the fund which collectively exhausts all, or substantially all, of that capacity.

(8) An authorised investment fund ... also meets the genuine diversity of ownership condition if—

(a) an investor in the fund is a unit trust scheme , an offshore fund or another authorised investment fund (a “feeder fund”);

(b) conditions A to C are met in relation to the authorised investment fund after taking into account—

(i) the fund documents relating to the feeder fund, and

(ii) the intended investors in the feeder fund; and

(c) the authorised investment fund and the feeder fund have the same manager (or proposed manager).

(8A) For the purposes of these Regulations, a long-term asset fund is treated as meeting the genuine diversity of ownership condition if—

(a) the fund’s prospectus was published on or before 9th December 2021, or

(b) at least 70% of the shares or units in the fund are held by one or more relevant investors or by the manager of the fund in the capacity as manager.

(8B) In paragraph (8A), “ relevant investor ” means any of the persons specified in categories A to E.

(8C) Category A is the trustee or manager of—

(a) an authorised unit trust scheme which meets the genuine diversity of ownership condition, or

(b) a unit trust scheme which—

(i) is authorised under the law of a territory outside the United Kingdom in a way which makes it, under that law, the equivalent of an authorised unit trust scheme, and

(ii) meets conditions A to C or complies with paragraph (8).

(8D) Category B is a company—

(a) which is an open-ended investment company which meets the genuine diversity of ownership condition, or

(b) which—

(i) is incorporated under the law of a territory outside the United Kingdom and is, under that law, the equivalent of an open-ended investment company, and

(ii) meets conditions A to C or complies with paragraph (8).

(8E) Category C is a person acting in the course of a long-term insurance business (that is, the activity of effecting or carrying out contracts of long-term insurance within the meaning of the Financial Services and Markets (Regulated Activities) Order 2001) where—

(a) that person—

(i) is authorised under FISMA 2000 to carry on such business, or

(ii) has an equivalent authorisation under the law of a territory outside the United Kingdom to carry on such business, and

(b) if that person is a company, it is not a close company.

(8F) Category D is a person who cannot be liable for corporation tax or income tax (as relevant) on the grounds of sovereign immunity.

(8G) Category E is the trustee, manager or administrator of a pension scheme (within the meaning given by section 150(1) of the Finance Act 2004) other than an investment regulated pension scheme (within the meaning given by paragraphs 1 and 2 of Schedule 29A to that Act).

(8H) For the purposes of paragraph (8E)(b) (category C), in applying the rules in Chapter 2 of Part 10 of CTA 2010 to determine whether a company is “a close company”, section 442(a) (non-UK resident companies) is to be treated as omitted.

(9) In this Part “fund documents” means—

(a) the instrument constituting the fund, and

(b) the fund’s prospectus in issue for the time being ... .

Section 9B Clearance in relation to the genuine diversity of ownership condition

(1) An application for clearance that an authorised investment fund meets the genuine diversity of ownership condition (see regulation 9A) may be made in writing to the Commissioners by the manager (or proposed manager) of an authorised investment fund.

(2) An application for clearance must be accompanied by the fund documents in the form in which it is proposed that those documents will apply at the beginning of the first accounting period of the fund for which clearance is sought.

(3) If regulation 9A(2)(b) and (8) applies, an application for clearance by the authorised investment fund must be accompanied by—

(a) the documents specified in paragraph (2), and

(b) the fund documents of the feeder fund in the form in which it is proposed that those documents will apply at the beginning of the first accounting period of the fund for which clearance is sought.

(4) The Commissioners may require the manager (or proposed manager) to provide further particulars if they believe that full particulars of the fund have not been provided.

(5) The Commissioners must notify the applicant within 28 days of the receipt of the particulars (or, if paragraph (4) applies, of all further particulars required) that they—

(a) give clearance that the fund meets the genuine diversity of ownership condition,

(b) give that clearance subject to conditions, or

(c) refuse to give that clearance.

(6) An authorised investment fund (and investors in that fund) may not rely on a clearance given under this regulation if—

(a) at the beginning of the first accounting period of the fund to which the clearance relates (and at the beginning of each subsequent accounting period), a relevant statement in the fund documents in issue for the time being is not in accordance with a relevant statement in the documents considered by the Commissioners before giving clearance,

(b) the fund acts or is operated in contravention of a relevant statement in the fund documents,

(c) the fund documents are materially amended, or

(d) the fund is operated otherwise than in accordance with condition C of the genuine diversity of ownership condition (see regulation 9A(6)).

(7) If regulation 9A(2)(b) and (8) applies an authorised investment fund (and investors in that fund) may not rely on a clearance given under this regulation if any of sub-paragraphs (a) to (d) of paragraph (6) apply in relation to either the authorised investment fund or the feeder fund.

(8) Paragraph (6)(c) does not apply if the manager of the fund has obtained a clearance given under this regulation which applies to the amendment.

(9) For the purposes of paragraph (6)(c), a material amendment is one that may reasonably be construed as causing, or likely to cause, the fund to fail to meet the genuine diversity of ownership condition in relation to any accounting period.

Section 10 General rule for loan relationships: exclusion of capital profits, gains or losses

(1) This regulation applies if any profits, gains or losses arising to an authorised investment fund from a creditor relationship in an accounting period are capital profits, gains or losses.

(2) For the purposes of Chapter 2 of Part 4 of FA 1996 (loan relationships) those profits, gains or losses must not be brought into account as credits or debits.

(3) Regulation 12 explains what is meant by “capital profits, gains or losses” in the case of an authorised investment fund that prepares accounts in accordance with UK generally accepted accounting practice.

(4) This regulation is subject to regulation 14B (tax treatment of qualified investor schemes.

Section 11 General rule for derivative contracts: exclusion of capital profits, gains or losses

(1) This regulation applies if any profits, gains or losses arising to an authorised investment fund from a derivative contract in an accounting period are capital profits, gains or losses.

(2) For the purposes of Schedule 26 to FA 2002 (derivative contracts) those profits, gains or losses must not be brought into account as credits or debits.

(3) Regulation 12 explains what is meant by “capital profits, gains or losses” in the case of an authorised investment fund that prepares accounts in accordance with UK generally accepted accounting practice.

(4) This regulation is subject to regulation 14B (tax treatment of qualified investor schemes).

Section 12 Accounts prepared in accordance with UK generally accepted accounting practice

(1) In the case of an authorised investment fund that prepares accounts in accordance with UK generally accepted accounting practice, capital profits, gains or losses arising from a creditor relationship in an accounting period, or capital profits, gains or losses arising from a derivative contract in an accounting period, are such profits, gains or losses as fall to be dealt with under the heading “net capital gains/losses” in the statement of total return for the accounting period.

(2) For the purposes of paragraph (1), the statement of total return for an accounting period is the statement of total return which, in accordance with the Statement of Recommended Practice used for the accounting period, must be included in the accounts contained in the annual report of the authorised investment fund which deals with the accounting period.

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Section 12A Deduction of expenses

Where an authorised investment fund makes an interest distribution for a distribution period, the amount that can be deducted under Step 2 in section 4(2) of CTA 2010 (amounts that can be relieved against the company’s total profits of the period) cannot exceed an amount that would reduce the total profits chargeable to corporation tax for the accounting period in which the last day of the distribution period falls to below the total amount chargeable to corporation tax in accordance with Part 4 of CTA 2009 for that accounting period.

Section 13 Treatment of interest distributions for purposes of loan relationships

(1) Chapter 2 of Part 4 of FA 1996 (loan relationships) has effect in relation to an authorised investment fund and to an interest distribution paid by that fund as it would have effect if the interest distribution were interest payable on a loan to the authorised investment fund and were, accordingly, interest under a loan relationship to which the authorised investment fund were a party.

(1A) But paragraph (1) only applies to the extent that the interest distribution is derived from income other than income chargeable to corporation tax in accordance with Part 4 of CTA 2009 and in respect of which the legal owner is charged to corporation tax.

(2) For the purposes of these Regulations, an interest distribution is treated as paid if it is credited to the capital part of the scheme property of an authorised investment fund on behalf of a participant in respect of the participant's accumulation units.

(3) This regulation is subject to regulation 14 and regulation 14B (tax treatment of qualified investor schemes) .

(4) In this regulation an “interest distribution” includes a TEF distribution (non-dividend) (see regulation 69Z61(3)).

Section 14 Treatment of deficits on loan relationships

Section 83(2)(c) of FA 1996 (carrying back of non-trading deficit on loan relationships) shall not have effect in relation to the loan relationships of an authorised investment fund (so that, accordingly, if for any accounting period there is a deficit on the loan relationships of the authorised investment fund, the deficit may not be carried back to be set off against profits for earlier accounting periods).

This is subject to regulation 14B (tax treatment of qualified investor schemes).

Section 14A Authorised investment funds with limited investment powers – stamp duty reserve tax

(1) Where, for the relevant period—

(a) an authorised investment fund is constituted as a unit trust scheme (“the scheme”); and

(b) conditions A to D in this regulation are met,

paragraph 2 of Schedule 19 to the Finance Act 1999 (“ FA 1999 ”) shall not apply to a surrender to the scheme that would, but for this regulation, be taxable under Part II of that Schedule.

(2) Condition A is that the scheme must be dedicated to investment in the shares of a specified open-ended investment company to which Part 4A applies (“the PAIF ”).

(3) Condition B is that—

(a) the trust deed of the scheme must specify that the scheme may only invest in the PAIF ; and

(b) the prospectus for the scheme must state that the scheme may only invest in the PAIF .

(4) Condition C is when an investment in the scheme is made, the scheme must (within one working day of that investment) invest in the PAIF an amount equal to the investment.

(5) Condition D is that when a withdrawal of investment from the scheme is made, the scheme must (within one working day of that withdrawal) withdraw from the PAIF an amount equal to the withdrawal.

(6) For the purposes of complying with conditions C and D, an investment in the scheme may not be set off against a withdrawal from the scheme.

(7) A scheme will not be dedicated to investment in the PAIF for the purpose of condition B if it has any assets other than shares in the PAIF and money.

(8) In this regulation—

“relevant period” means the relevant two-week period referred to in paragraph 4(2) of Schedule 19 to FA 1999 .

“surrender” means a surrender within the meaning of paragraph 2 of Schedule 19 to FA 1999 .

“working day” means a day other than—

a Saturday, Sunday, Christmas Day or Good Friday; or

a Bank Holiday in the United Kingdom under the Banking and Financial Dealings Act 1971.

“money” includes cash held on deposit but does not include securities of any kind.

Section 14A Authorised investment funds with limited investment powers – stamp duty reserve tax

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Section 14B Tax treatment of qualified investor schemes

(1) The provisions in paragraph (2) shall not apply to a qualified investor scheme in relation to an accounting period of the scheme unless the genuine diversity of ownership condition (see regulation 9A ) is met in relation to that accounting period.

(2) The provisions referred to in paragraph (1) are—

(a) the provisions of Part 2 of these Regulations,

(aa) the provisions of Part 4 of these Regulations,

(b) the provisions of Part 4A of these Regulations,

(c) where the qualified investor scheme is an authorised unit trust scheme, section 468(1A) of ICTA ,

(d) where the qualified investor scheme is an open-ended investment company, section 468A(1) of ICTA ,

(e) in subsection (1) of section 99 of TCGA 1992 (as modified by these Regulations) the words “except that nothing in this section” to the end of that sub-section, and

(f) section 100 of TCGA 1992 .

(3) Where the genuine diversity of ownership condition is not met in relation to an accounting period of the scheme—

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(b) the total amount available for income allocation to participants must only be allocated in accordance with paragraph (1)(b) of regulation 17 (allocation of income) , and

(c) Part 3A of CTA 2010 (companies with small profits) does not apply.

(4) In these Regulations a “qualified investor scheme” means a fund, authorised by the appropriate regulator , in which a statement that the fund is a qualified investor scheme is included in the instrument constituting the scheme.

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Section 14C The genuine diversity of ownership condition

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Section 14D Clearance in relation to the genuine diversity of ownership condition

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Section 14E Tax treatment of diversely owned AIFs

(1) This regulation applies to an authorised investment fund in respect of an accounting period if—

(a) the fund carries out an investment transaction in that period, and

(b) the fund meets the genuine diversity of ownership condition in relation to that period.

(2) In these Regulations an authorised investment fund to which this regulation applies is referred to as a “diversely owned AIF”.

(3) If the profits or losses, as the case may be, arising from an investment transaction are capital profits, gains or losses, that investment transaction shall be treated as a non-trading transaction of the diversely owned AIF for the purposes of corporation tax.

(4) Chapter 2 of Part 3 of CTA 2009 (income taxed as trade profits) does not apply to capital profits and losses arising from such an investment transaction.

(5) For the purposes of these Regulations “investment transaction” means a transaction specified in regulation 2 of the Investment Transactions (Tax) Regulations 2014 .

(6) For the purposes of paragraphs (3) and (4) capital profits, gains or losses arising from an investment transaction in an accounting period are such profits, gains or losses as fall to be dealt with under the heading “net capital gains/losses” in the statement of total return for an accounting period.

(7) For the purposes of paragraph (6), the “statement of total return for an accounting period” has the same meaning as in regulation 12(2).

Section 14F Meaning of “investment transaction”

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Section 14G Meaning of relevant contracts: general

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Section 14H Meaning of relevant contract: options

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Section 14I Meaning of relevant contract: futures

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Section 14J Meaning of relevant contract: options and futures - general provisions

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Section 14K Meaning of relevant contract: contract for differences

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Section 14L Loan relationships or related transactions

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Section 14M Units in a collective investment scheme

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Section 14N Carbon emission trading products

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Section 14DA Tax treatment of long-term asset funds

(1) The provisions in paragraph (2) do not apply to a long-term asset fund in relation to an accounting period of the fund unless the genuine diversity of ownership condition is met in relation to that accounting period.

(2) The provisions referred to in paragraph (1) are—

(a) the provisions of Part 2 of these Regulations,

(b) the provisions of Part 4 of these Regulations,

(c) the provisions of Part 4A of these Regulations ,

(d) in section 99(1) of TCGA 1992 , the words from “except that nothing in this section” to the end of that subsection,

(e) section 100 of TCGA 1992 ,

(f) where the fund is an open-ended investment company, section 614 of CTA 2010 , and

(g) where the fund is an authorised unit trust, section 618 of CTA 2010 .

(3) Where the genuine diversity of ownership condition is not met in relation to an accounting period of the fund—

(a) Part 3A of CTA 2010 (companies with small profits) does not apply, and

(b) the total amount shown in the distribution accounts available for distribution to participants must only be shown as available for distribution in accordance with paragraph (1)(b) of regulation 17 (allocation of income for distribution as dividends).

(4) In these Regulations, a “ long-term asset fund ” means an authorised investment fund whose instrument constituting the fund contains a statement that the fund is a long-term asset fund.

Section 14ZA Interests in offshore non-reporting funds: general

(1) Regulation 14ZB applies if—

(a) an authorised investment fund disposes of an asset which is an interest in a non-reporting fund (“the asset”); and

(b) the conditions in paragraph (2) are satisfied for the period beginning with the date on which the authorised investment fund acquired the asset and ending on the date of the disposal.

(2) The conditions are that—

(a) the authorised investment fund has access to the accounts of the non-reporting fund,

(b) the authorised investment fund had sufficient information about the non-reporting fund referred to in paragraph (1)(a) to enable it to prepare computations of reportable income for the non-reporting fund for every accounting period which, if the non-reporting fund were a reporting fund, would be a reporting period ending within the period mentioned in paragraph (1)(b),

(c) the authorised investment fund has prepared such computations, and

(d) any excess of the authorised investment fund’s share of the reportable income of the non-reporting fund over the authorised investment fund’s share of the distributions made by the non-reporting fund is included in the amount available for income allocation by the authorised investment fund for each reporting period of the authorised investment fund which falls within the period mentioned in paragraph (1)(b).

(3) An authorised investment fund has an interest in a non-reporting fund if and to the extent that it has an interest in such a fund for the purposes of the Offshore Funds Regulations.

(4) For the purposes of the computations mentioned in paragraph (2)(b), regulation 80 of the Offshore Funds Regulations applies if (and only if) the non-reporting fund is a UCITS fund.

(5) In this regulation, “ UCITS fund” has the same meaning as in regulation 12 of the Offshore Funds Regulations and “reporting period” has the same meaning as in regulation 91 of those Regulations.

Section 14ZB Treatment of disposal of interest in non-reporting fund

No tax shall be charged on the authorised investment fund under regulation 17 of the Offshore Funds Regulations on the disposal by the authorised investment fund of an asset which is an interest in a non-reporting fund at the time of the disposal.

Section 14ZC Treatment of interest in non-reporting fund: cases where the conditions in regulation 14ZA(2) would not be satisfied

(1) This regulation applies in relation to an asset of an authorised investment fund (“the asset”) which—

(a) is an interest in a non-reporting fund, but

(b) in relation to which the conditions in regulation 14ZA(2) would not (apart from this regulation) be satisfied for the whole of the period specified in regulation 14ZA(1)(b) in relation to the asset.

(2) Paragraph (4) applies if the authorised investment fund, in relation to the asset, reasonably expects to satisfy the conditions in regulation 14ZA(2) for the period beginning with a date to be determined in accordance with paragraph (3) (“the deemed start date”) and ending on the date of the disposal of the asset.

(3) The deemed start date is a date to be determined by the authorised investment fund but which must not be earlier than 6th March 2011.

(4) The authorised investment fund is treated for all purposes (including for the purposes of determining the beginning of the period mentioned in regulation 14ZA(1)(b)) as if it had, on the deemed start date, disposed of the asset (and not satisfied the conditions in regulation 14ZA(2)) and immediately reacquired the asset for a consideration equal to its market value on the deemed start date.

(5) The authorised investment fund must notify the Commissioners of the deemed start date by making an appropriate entry in its tax return for the accounting period in which the deemed start date falls.

Section 14ZD Index tracking funds

(1) This regulation applies if—

(a) an authorised investment fund has an interest in a non-reporting fund, and

(b) the conditions in paragraph (2) are met throughout the relevant period.

(2) The conditions are that—

(a) in accordance with either the authorised investment fund’s prospectus or the instrument constituting the authorised investment fund, the aim of the authorised investment fund’s investment policy is to replicate the performance of a qualifying index,

(b) the main purpose of the investment in the non-reporting fund is to represent the composition of the qualifying index, and

(c) the capital and income returns of the authorised investment fund replicate as closely as practicable the returns of the investments comprised in the qualifying index.

(3) For the purposes of paragraph (2) an index is a “qualifying index” if—

(a) it is based solely on the value of securities listed on a recognised stock exchange or admitted to trading on a regulated market,

(b) either the Financial Conduct Authority or an authority responsible for regulating offshore funds recognises the index on the basis that—

(i) its composition is sufficiently diverse,

(ii) it represents an adequate benchmark for the market to which it refers, and

(iii) it is published in such a way that it is widely available, and

(c) it is calculated and published by a body which is managed independently from the management of the authorised investment fund.

(4) Regulation 17 of the Offshore Funds Regulations does not apply in respect of a disposal of the interest in the non-reporting fund by the authorised investment fund.

(5) In this regulation “the relevant period” means the period—

(a) starting on the day the authorised investment fund acquires the interest in the non-reporting fund (or any part of it), and

(b) ending on the day of the disposal of the interest.

(6) In this regulation—

(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) “regulated market” means—

(i) a UK regulated market within the meaning given by Article 2.1(13A) of Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments,

(ii) an EU regulated market within the meaning given by Article 2.1(13B) of that Regulation, and

(iii) a Gibraltar regulated market within the meaning given by Article 26(11)(b)(i) of that Regulation.

Section 15 Interpretation

(1) In these Regulations—

(a) “income allocation” means the distribution of an amount to participants; and

(b) “distribution” includes the crediting of an amount to the capital part of the scheme property on behalf of a participant in respect of the participant’s accumulation units.

(2) In these Regulations “ distribution period ”, in relation to an authorised investment fund, means a period by reference to which the total amount available for income allocation to participants is ascertained.

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) In these Regulations the “distribution date” for a distribution period of an authorised investment fund means—

(a) the date specified by or in accordance with the terms of the trust or the instrument of incorporation of the company for any distribution for that distribution period, or

(b) if no date is specified, the last day of that distribution period.

Section 16 Funds excluded from the ambit of this Part

This Part does not apply to an authorised investment fund if the fund—

(a) is a registered pension scheme within the meaning of Part 4 of the Finance Act 2004 , or

(b) is treated, under paragraph 1(1) of Schedule 36 to that Act, as having become such a scheme.

Section 17 Allocation of income

(1) The total amount available for income allocation must be allocated in one of the following ways—

(a) for distribution as yearly interest (see regulations 18 to 21); or

(b) for distribution as dividends (see regulation 22).

(1A) Paragraph (1) does not apply in relation to an authorised investment fund to which Part 4A or 4B applies.

(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Section 18 Interest distributions: general

(1) Paragraph (2) applies where the total amount available for income allocation is allocated for distribution as yearly interest.

(2) The Tax Acts shall have effect as if the total amount were payments of yearly interest made on the distribution date by the authorised investment fund to the participants in proportion to their rights.

(2A) For the purposes of Part 10 (Corporate Interest Restriction) of TIOPA 2010, an interest distribution is treated as not being a tax-interest expense amount of the authorised investment fund.

(3) In these Regulations an “ interest distribution ” means a payment of yearly interest treated as made by virtue of paragraph (2) (including a payment of interest treated as made to a participant who is not chargeable to income tax).

(4) This regulation is subject to—

(a) regulation 19 (the qualifying investments test), and

(b) regulation 23 (treatment of de minimis amounts).

Section 19 The qualifying investments test

(1) No amount may be shown as available for distribution as yearly interest unless the authorised investment fund in question satisfies the qualifying investments test throughout the distribution period.

(2) An authorised investment fund satisfies the qualifying investments test throughout a distribution period (the “relevant period”) if, at all times in that period, the market value of the qualifying investments exceeds 60% of the market value of all the investments of the fund.

(3) Regulations 20 and 21 deal with the meaning of the expression “qualifying investments”.

Section 20 Meaning of “qualifying investments”

In these Regulations “ qualifying investments ”, in relation to an authorised investment fund, means the investments of that fund which fall within any of the following categories (read, as appropriate, with any applicable provision in regulation 21)—

Category 1

Money placed at interest.

Category 2

Securities.

Category 3

Shares in a building society.

Category 4

Qualifying units in another authorised investment fund.

Category 4A

Qualifying units in an offshore fund.

Category 5

Derivative contracts whose underlying subject matter consists wholly of any one or more of the matters referred to in categories 1 to 4A and currency.

Category 6

Contracts for differences whose underlying subject matter consists wholly of any one or more of interest rates, creditworthiness and currency.

Category 7

Derivative contracts not within categories 5 or 6 where there is a hedging relationship between the derivative contract and an asset within categories 1 to 4A .

Category 8

Alternative finance arrangements.

Section 21 Meaning of “qualifying investments”: further provisions

(1) This regulation applies for the purposes of regulation 20.

(2) For the purposes of category 2 “securities” do not include shares in a company.

(3) For the purposes of category 4 units in another authorised investment fund are qualifying units at any time in the relevant period if, and only if, the other authorised investment fund would itself (on the relevant assumption) satisfy the qualifying investments test throughout that period.

(4) For the purposes of paragraph (3) the relevant assumption is that the only investments of the other authorised investment fund which are to be regarded as qualifying investments are those falling within categories 1 to 3 and 5 to 8.

(5) In paragraph (4) references to investments of an authorised investment fund—

(a) in the case of an open-ended investment company are references to investments comprised in the scheme property of that company, but do not include references to cash awaiting investment, and

(b) in the case of an authorised unit trust are references to investments subject to the trusts of that authorised unit trust, but do not include references to cash awaiting investment.

(5A) For the purpose of category 4A, units in an offshore fund are qualifying units at any time in the relevant period if, and only if, the offshore fund would itself (on the relevant assumption) satisfy the qualifying investments test throughout that period.

(5B) For the purposes of paragraph (5A), the relevant assumption is that the only investments of the offshore fund which are to be regarded as qualifying investments are those falling within categories 1 to 3 and 5 to 8.

(5C) In paragraph (5B), references to investments of an offshore fund—

(a) in the case of an offshore fund which is a company, are references to investments which are the investments of the company, but do not include cash awaiting investment, and

(b) in the case of any other offshore fund, are references to investments subject to the trust or other arrangements constituting the investments of the other offshore fund, but do not include cash awaiting investment.

(6) For the purposes of categories 5 and 6 “ underlying subject matter ” has the same meaning as in paragraph 11 of Schedule 26 to FA 2002 .

(7) For the purposes of categories 5 and 6 underlying subject matter may consist of currency only if and to the extent that there is a hedging relationship between the contract and a qualifying investment falling within categories 1 to 4.

(8) In paragraph (7) “ hedging relationship ” has the meaning given by paragraph 12(14) of Schedule 26 to FA 2002 .

(9) For the purposes of category 6 a “ contract for differences ” has the same meaning as in paragraph 12 of Schedule 26 to FA 2002 .

(10) For the purposes of category 7 a fund has a hedging relationship between a derivative contract on the one hand (“the hedging instrument”) and an asset on the other (“the hedged item”) if and to the extent that—

(a) the hedging instrument and the hedged item are designated by the fund as a hedge, or

(b) in any other case the hedging instrument is intended to act as a hedge of the exposure to changes in fair value of a hedged item which is a recognised asset or an identified portion of such an asset that is attributable to a particular risk and could affect the total net return of the fund.

(11) For the purposes of category 8 “ alternative finance arrangements ” has the meaning given by section 46(1) of the Finance Act 2005 .

Section 22 Dividend distributions: general

(1) Paragraph (2) applies where the total amount available for income allocation is allocated for distribution as dividends.

(2) The Tax Acts shall have effect as if the total amount were dividends on shares paid on the distribution date by the authorised investment fund to the participants in proportion to their rights (but see regulation 96A (modification of CTA 2009 )) .

(3) In these Regulations a “ dividend distribution ” means a dividend treated as paid by virtue of paragraph (2) (including a dividend treated as paid to a participant who is not chargeable to corporation tax).

(4) This regulation is subject to regulation 23 (treatment of de minimis amounts).

Section 23 Provisions applying if amounts available for distribution are de minimis

(1) An authorised investment fund is not treated as making a distribution for a distribution period if conditions A to D are met.

(2) Condition A is that, in accordance with rules made by the appropriate regulator , the authorised investment fund has an agreed de minimis limit.

(3) Condition B is that the authorised investment fund—

(a) has calculated that the total income available for income allocations is a de minimis amount, and

(b) chooses to waive the allocation of that de minimis amount.

(4) Condition C is that the de minimis amount is carried forward to the next distribution period as an amount available for distribution to participants.

(5) Condition D is that none of the units of the authorised investment fund in issue on the distribution date are in bearer form.

(6) If this regulation applies, the authorised investment fund is not required to comply with the requirements of section 234A of ICTA (information relating to distributions) in respect of the de minimis amount for the distribution period in question.

(7) In this regulation—

the “ de minimis limit ”, in relation to an authorised investment fund, means an amount in respect of which a distribution of income of the fund is not required if the total amount available for income allocation to participants does not exceed that amount, and

“ de minimis amount ” means an amount falling within the de minimis limit.

Section 24 Structure of this Part

The structure of this Part of these Regulations is as follows—

this Chapter contains preliminary provisions;

Chapter 2 contains provisions relating to the tax treatment of participants chargeable to income tax;

Chapter 3 contains provisions relating to the tax treatment of participants chargeable to corporation tax;

...

Section 25 Funds excluded from the ambit of this Part

This Part does not apply to an authorised investment fund if the fund—

(a) is a registered pension scheme within the meaning of Part 4 of the Finance Act 2004 , or

(b) is treated, under paragraph 1(1) of Schedule 36 to that Act, as having become such a scheme.

Section 26 Deduction of tax where interest distributions made

(1) This regulation applies if an interest distribution is made for a distribution period to a participant chargeable to income tax.

(2) Any obligation to deduct a sum under section 874 of ITA 2007 is subject to the provisions of this regulation.

(3) In this Part the “ deduction obligation ” means the obligation specified in paragraph (2).

(4) The deduction obligation does not apply to the interest distribution if—

(a) the participant is a company;

(b) the participant consists of the trustees of a unit trust scheme;

(c) the reputable intermediary condition is met with respect to a participant on the distribution date (see regulation 27); ...

(d) the residence condition is met with respect to a participant on the distribution date (see regulation 30); ...

(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , or

(f) the offshore marketing condition is met with respect to the class of units in relation to which the distribution is made (see regulation 33A) .

(5) But if the participant is a company which is the trustee of the trust to which (or under which) the interest distribution is made (or received), the deduction obligation is not excluded by virtue of paragraph (4)(a).

(6) In its application to an interest distribution to a participant in respect of accumulation units, the deduction obligation is an obligation to deduct a sum out of the amount being credited to scheme capital on the participant's behalf.

Section 27 The reputable intermediary condition

(1) The reputable intermediary condition is met with respect to a participant on the distribution date if conditions A to C are met.

(2) Condition A is that the interest distribution is paid on behalf of the participant to a company.

(3) Condition B is that the legal owner has reasonable grounds for believing that the participant is not ... resident in the United Kingdom.

(4) Condition C is that the company mentioned in paragraph (2)—

(a) is subject to the EC Money Laundering Directive,

(b) is subject to equivalent non-EC provisions, or

(c) is a company which—

(i) is resident in a regulating country or territory, and

(ii) is an associated company of a company which is subject to paragraph (a) or (b).