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HMRC internal manual

Company Taxation Manual

Authorised investment funds: taxation of participants within the charge to CT: financial traders and diversely owned AIFs

Because certain profits from “investment transactions” (see CTM48282+) cannot be taxed as trading profits when carried out by a diversely owned AIF (see CTM48280) to which SI2006/964 Regulation 14E applies, special rules are needed to prevent financial traders sheltering profits from these types of transactions in such an AIF. Without such rules, what would otherwise be taxable profits of the financial trader could be rolled-up as exempt capital gains in the AIF and later realised as a chargeable gain when the units are disposed of.

The special rules are set out in SI2006/964 Regulations 52B to 52E. They ensure that financial traders (including in some cases persons connected with a financial trader) holding units in a diversely owned AIF must include all distributions and realised and unrealised gains/losses in respect of those units in the computation of their trading profits (see CTM48535 and 48540).