Investment trusts: conditions for approval: income: trading profits
Trading profits of any description - including those which relate to transactions in shares and securities - are not considered to be income derived from shares and securities for the purposes of section 842(1)(a).
Whether or not any activity carried on by a company seeking approval as an investment trust amounts to trading is a question of fact and must be considered by reference to the primary facts and circumstances of each individual case.
In considering whether any of the activities of a prospective investment trust amount to trading, you should apply the principles set out in BIM20250 and following.
Most investment trusts will be listed under Chapter 15 of the UK Listing Rules (closed-ended investment funds). These rules require a company to have a published investment policy which demonstrates how they intend to manage their assets with a view to spreading investment risk. You should establish whether a company is listed under Chapter 15, and what its published investment policy is, when considering whether or not it is trading.
The active management of an investment portfolio does not constitute trading and, although not conclusive in itself, Chapter 15 listing does provide a firm indication that activities falling within the scope of the company’s published investment policy are carried on in the nature of investment.
Where there is evidence that the company is carrying on activities that may amount to trading and the scale of these activities is sufficient to jeopardise the company’s ability to meet the condition at section 842(1)(a), you should establish the full facts and refer the case to BAI (Investment Trusts).