Who is likely to be affected
Operators of co-ownership authorised contractual schemes (CoACS) and investors in CoACS.
General description of the measure
This measure will do four things to reduce tax complexity in relation to CoACS:
- clarify the process for calculating any capital allowances which may be claimed by investors in CoACS
- introduce new requirements for information which the operator of a CoACS must provide to investors and to HM Revenue and Customs (HMRC)
- introduce new rules to clarify what is to be treated as an investor’s income when a CoACS has invested in an offshore fund
- clarify the rules for investors to calculate capital gains arising from the disposal of untis in a CoACS
In line with the government’s UK Investment Management Strategy published in March 2013, this measure aims to reduce tax complexity for investors in CoACS and clarify requirements on operators of CoACS.
Background to the measure
CoACS are collective investment schemes which are authorised by the Financial Conduct Authority. CoACS were introduced in 2013 to satisfy industry demand for a UK based tax transparent fund vehicle. Following informal discussions with tax agents and other specialists on the practical application of tax rules for investors, the government formally consulted in August 2016 on how to apply the principles of capital allowances for investors and on information that should be provided to investors and HMRC. The measure also seeks to address technical issues raised by agents concerning capital gains and taxation of income rolled up in offshore funds.
The new rules on calculating capital allowances will apply for those electing to apply them on or after Royal Assent to Finance Bill 2017 for accounting periods beginning on or after 1 April 2017. The new rules on information to be provided to investors and to HMRC and on investments in offshore funds will come into force at Royal Assent to Finance Bill 2017. The streamlined rules for investors to calculate capital gains on disposal of units in a CoACS will apply to disposals on or after an operative date in summer 2017.
Current law on capital allowances is contained in Part 2 of the Capital Allowances Act 2001, in particular Chapter 14 of Part 2.
There is no current law requiring a CoACS to provide information to investors or to HMRC.
Current law on capital gains tax on disposals of units in a CoACS or other transparent funds is contained in Chapter III of Part III of the Taxation of Chargeable Gains Act 1992. Current law on capital gains tax as it applies to insurers’ investments in collective investment schemes is contained in Chapter III of Part VI of the same Act.
There is no current law concerning what is to be taxed as income to an investor in a CoACS where the CoACS has invested in an offshore fund.
New primary legislation will do the following:
introduce a new elective scheme for capital allowances purposes for CoACS. The scheme will enable the operator to compute capital allowances at CoACS level and then to allocate those allowances to investors. Assets acquired by the CoACS will not be disposed of for capital allowances purposes until disposed of by the CoACS. Part disposals will no longer arise when an investor disposes of units
enable the government to introduce new regulations requiring operators of CoACS to provide specified information to investors and to HMRC. The operator will be required to provide each investor with sufficient information to complete their tax return. The operator will also be required to provide certain information to HMRC annually and other information on request
enable the government to introduce new regulations providing that where a CoACS has invested in an offshore fund, certain amounts will be treated as the income of the investors. The new rules will be broadly modelled on the existing rules for offshore transparent funds investing in other offshore funds
New secondary legislation will introduce a number of technical changes to the rules for calculating the capital gain on disposal of units in transparent funds including CoACS. It will bring all transparent funds under the same rules as CoACS. It will clarify how to establish the amount of allowable expenses, including the treatment of loan relationship and derivative contract debits and credits. It will clarify the interaction with expenditure which qualifies for capital allowances. Legislation will also clarify the capital gains treatment of insurers’ seed investments in collective investment schemes by separating them from other investments.
Summary of impacts
Exchequer impact (£m)
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This measure is expected to have a negligible impact on the Exchequer.
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
Only individuals investing a minimum of £1 million can invest in an Authorised Contractual Schemes (ACS), so the impact on individuals is expected to be negligible.
The measure is not expected to impact on family formation, stability or breakdown.
The measure is expected to have no impact in relation to the protected characteristics.
Impact on business including civil society organisations
It is expected that this measure will be beneficial to institutional investors in CoACS such as insurance companies and pension funds, through a reduction in complexity for investors in, and operators of, CoACS. This measure is expected to have a negligible impact on businesses’ administrative burdens. Administrators and advisers of CoACS will incur a one off cost of need to familiarise themselves with the new rules and may also need to make minor systems changes to provide information to investors and HMRC. On going costs include complying with new information requirements. On-going savings are expected from clarifying the process for calculating any capital allowances and the streamlining of the rules regarding calculation of capital gains. There is no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
It is not anticipated that implementing this change will incur any additional costs or savings for HMRC.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
HMRC will monitor this measure through ongoing contact with the investment management industry.
If you have any questions about this change, please contact Colin Strudwick on Telephone: 03000 585275 or email: email@example.com.