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HMRC internal manual

Capital Gains Manual

Open-ended investment companies (OEICs): SI2006/964

The direct tax treatment of OEICs is established by the Authorised Investment Funds(Tax) Regulations 2006 (SI2006/964) which came into force on 1 April 2006. OEICs are oneclass of authorised investment fund (AIF) as de-fined by the regulations. and authorisedunit trusts (AUTs) constitute the second major class of AIF. The regulations operateprincipally by making modifications to the Tax Acts and to TCGA 1992. In particular,regulation 98 provides that TCGA 1992 applies to

  • OEICs
  • holdings in, and the assets of, OEICs
  • transactions involving OEICs

in the same way as it applies to AUTs, rights under and assets subject to such trusts,and transactions for purposes connected with such trusts. In broad terms, this means thatthe gains of an OEIC are not subject to Corporation Tax and shares in an OEIC, like unitsin a unit trust, are treated in the same way as other shares. It also means thatprovisions in the Tax Acts and TCGA 1992 which are generally applicable to companies butwhich do not apply in relation to authorised unit trusts - for example, the group reliefrules - do not apply in relation to OEICs.

An OEIC cannot be the principal company of a group for chargeable gains purposes.Regulation 107 modifies TCGA92/S170 to make this clear. An OEIC also cannot be a member ofa group for chargeable gains purposes as it does not have ordinary share capital (CTM48245 and 48250).

The distinction between capital and income profits, gains and losses is not recognised inthe context of loan relation-ships and derivative contracts. Regulations 10 and 11 modifyChapter 2 of Part 4 Finance Act 1996 (loan relationships) and Schedule 26 Finance Act 2002(derivative contracts) respectively to ensure that capital profits gains or losses are notbrought into account when computing amounts taxable on an AIF.