Authorised investment funds (AIFs): qualified investor schemes: genuine diversity of ownership condition
From the 1 January 2009, the genuine diversity of ownership condition (GDO) (regulation 14C SI2006/964) applies to all qualified investor schemes (QISs). However, from the 1 September 2009 this GDO is replaced by a general GDO introduced via SI2009/2036 into regulation 9A SI2006/964. See CTM48155 to CTM48175 for details of the new general GDO.
The GDO was introduced as a tax requirement to prevent investors from gaining tax advantages by using a QIS in a way which did not represent a genuine pooling of investors’ funds. The rule is similar to that adopted for Property Authorised Investment Funds (Property AIFs).
Unlike the previous substantial holding rule (explained in CTM48735) that applies to the investor and exempts certain investors from the requirement to comply with the 10% limit, the genuine diversity of ownership condition applies to the QIS itself.
Criteria required to meet the GDO condition
For a QIS that is established on or after 1 January 2009, the terms of the GDO that were introduced on the 1 January specifically for QISs are very slightly different to the general GDO that came into force on the 1 September 2009 and the terms of the former condition can be found in regulation 14C SI2006/964 (now deleted).
If there are any QISs that were established between the 1 January 2009 to the 31 August 2009 that have relied upon meeting the specific GDO in regulation 14C then, in general, the QIS should be assumed to meet the conditions set out in the general GDO in regulation 9A (inserted by SI2009/2036). If it is considered that the general GDO will not be met in these circumstances, then advice should be sought from CTIAA.
Any QIS established before the 1 January must meet the GDO from the beginning of the second AP starting after the 1 January 2009 and all subsequent APs.
For detailed guidance on the general GDO please refer to CTM48155 to 48170. CTM48165 sets out guidance on how to apply for an advance clearance from HMRC that the GDO has been met.