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HMRC internal manual

Capital Gains Manual

Non-Resident Capital Gains Tax (NRCGT) - Disposals on or after 6 April 2015: The Charge to Non-Resident CGT, and the exemptions: "Widely-marketed scheme" test

The legislation ensures that a scheme holding assets for the benefit of a potentially large number of investors is outside the charge to non-resident CGT.  That is consistent with the exemption of diversely-held companies.  Such schemes are already exempt in the UK from CT on chargeable gains.

 

There is no blanket exemption for schemes, because such a vehicle could be used for avoidance purposes, set up for the benefit of a handful of individuals and no further investors invited to subscribe.  The widely-marketed test aims to ensure that the charge will only apply where schemes are intentionally closely held.  It is essentially a marketing test designed to establish whether the fund is widely available and marketed, rather than to measure its ownership or control at any particular time.

 

Sch C1/Part 2 sets out rules for determining whether a unit trust scheme or an open-ended investment company is a widely-marketed scheme, and so able to claim exemption from non-resident CGT under TCGA92/S14F.

 

The test for whether a scheme is “widely-marketed” applies as follows:

  • For schemes without a feeder fund investor, the test must be met throughout the “relevant investment period”, that is the period beginning with the day on which the scheme acquired the interest in UK land which is the subject of the non-resident CGT disposal, and ending with the day on which that disposal occurs; or, if shorter, 5 years up to the day on which the disposal occurs.
  • For schemes with a feeder fund investor, the test takes account of the scheme documents relating to the feeder fund and the intended investors in the feeder fund, and must be met throughout the “alternative period”, which the shorter of the “relevant investment period” and the period beginning when the feeder fund first became an investor in the scheme and ending with the date of the disposal.

 

Given that the test is intended to identify long term characteristics in a scheme, it is right that it requires the stated conditions to be met over a significant period - at any rate for the period the interest has been held, and possibly for a full five years prior to the disposal.

 

Sch C1/para 11 sets out several conditions that must be satisfied for a scheme to be treated as widely-marketed.

  • The scheme must produce documents, available to investors and HMRC, which specify the intended categories of investor, and give undertakings that units in the scheme will be widely available and will be marketed.
  • There must be nothing in the way the intended categories of investor is specified, or in the other terms or conditions governing participation in the scheme, that have a “limiting or deterrent effect”.
  • The units in the scheme are marketed and made available sufficiently widely to reach the intended categories of investors, and in a manner appropriate to attract those investors.

 

There would be a limiting or deterrent effect if only limited numbers or groups were permitted to invest, or reasonable investors falling in one of the stated categories were deterred from investing.  A scheme would not normally be regarded as failing to make units sufficiently available if at the time in question there was no capacity to receive additional investments.