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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: meaning of "financial trader"

SI2006/964 Regulation 52E

Regulation 52E defines a financial trader as a person carrying on a business which is:

  • A banking business;
  • An insurance business; or
  • A business consisting wholly or partly in dealing in “trading assets” such that any profit on such assets would form part of the trading profit of that business.

“Trading assets” for these purposes means:

  • Stocks and shares;
  • Relevant contracts;
  • Loan relationships;
  • Units in collective investment schemes;
  • Securities;
  • Foreign currency; and
  • Carbon emission trading products.

This aligns with the definition of “investment transactions” for the purposes of SI2006/964 Regulation 14E (see CTM48282 to 48292).

An insurance business for the purposes of Regulation 52E does not include a life assurance business, or that part of a wider insurance business that is life assurance business, carried on by a company. This carve out ensures that the special tax rules applying to life assurance companies are not disturbed by the rules in regulations 52B and 52C.

The definition of “financial trader” is extended to include a person connected with a financial trader (as defined above) in certain circumstances. This applies only where a financial trader transfers trading assets (as defined above) to a diversely owned AIF, under or as part of an arrangement which has an unallowable purpose, and a person connected with the financial trader either holds units in that AIF at the time of the transfer or later acquires units in that AIF. The purpose of this extension is to prevent a financial trader from getting around regulations 52B and 52C by arranging for the units in the diversely owned AIF to be held by a connected person who would not be caught by those regulations.

An arrangement has an unallowable purpose if the main or one of the main purposes is to obtain a tax advantage within the meaning of ICTA88/S840ZA, or an income tax advantage within the meaning of ITA2007/S683, for any person.