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HMRC internal manual

Company Taxation Manual

HM Revenue & Customs
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Authorised investment funds: taxation of participants within the charge to CT: financial traders and diversely owned AIFs: special rules

SI2006/964 Regulations 52B - 52D

Regulations 52B to 52D set out special rules applying to financial traders (see CTM48535) holding units in diversely owned AIFs (see CTM48280). The rules require the financial trader to include in its computation of trading profits for CT purposes:

  • All distributions; and
  • All realised and unrealised gains/losses

in respect of the units in the diversely owned AIF arising in each accounting period.

Realised and unrealised gains/losses in an accounting period are calculated by reference to the difference between the actual disposal value, or market value at the end of the accounting period where the units have not been disposed of, and the market value at the end of the previous accounting period, or the acquisition cost if the units were acquired during the accounting period.

Market value means the price published by the manager of the AIF on the appropriate day, or nearest preceding day. Where the manager publishes both buying and selling prices, the market value will be the buying price (which will be the lower of the two).

The rules are subject to CTA2009/S130, which means that financial traders which are insurance companies are not required to include distributions from diversely owned AIFs in the computation of trading profits where S130 would exempt them from that requirement.

The rules do not apply in the following cases:

  • Where the units in the diversely owned AIF are included in the financial trader’s trading stock and all profits/losses, including distributions (subject to CTA2009/S130), are included in the computation of trading profits on the basis of fair value accounting; or
  • Where the diversely owned AIF is a bond fund (see CTM48270) and CTA2009/S490 applies so that the financial trader must treat the units as a deemed creditor loan relationship which is accounted for on the basis of fair value accounting (see CTM48505).

This is because in both such cases the financial trader will already be recognising the distributions and realised/unrealised gains/losses required by regulations 52B and 52C.