authorised investment funds: qualified investor schemes: substantial QIS holding: ‘inadvertent breach’: example: not rectified
Inadvertent breach - holding retained - example
As in the previous example (CTM48750).htm”>CTM48755thequalified investor scheme (QIS) has reporting dates of 30 June and 31 December. All unitsin the QIS have equal rights to the net asset value.
Ms C, (who is, as required by Financial Services Authority rules a sophisticated investor)holds 6% of the units in QIS fund. On 1 March 2007 a major holder of units sells units tothe value of 40% of the entire fund which are immediately cancelled. This has the resultthat Ms C is left holding units representing 10% of the remaining net asset value of thefund. Ms C does not carry out any further transaction in units of the QIS before 6 April2008. In particular, in contrast to the previous example at CTM48750, she does not reduceher holding before 31 December 2007. This means that her holding will be asubstantial QIS holding until she disposes of it in full.
In order to complete her Self Assessment for 2007/08 Ms C needs to take the followingsteps:
- Calculate the value of her holding (as at the end of 1 March 2007) at the bid price or single price ruling on 1 March 2007 - this is the last measuring date before the tax year.
- Calculate the value of her holding (as at the start of 30 June 2007) at the bid price or single price ruling on 30 June 2007 - this is the first measuring date in the tax year.
- Subtract the value calculated at (1) above from the value calculated at (2) above.
- Calculate the value of her holding (as at the end of 30 June 2007) at the bid price or single price ruling on 30 June 2007. In this example this value will be the same as that reached at point (2) above but this will not always apply (see example 2 for 1 June 2007).
- Calculate the value of her holding (as at the start of 31 December 2007) at the bid price or single price ruling on 31 December 2007 - this is the last measuring date in the tax year.
- Subtract the value calculated at (4) above from the value calculated at (5) above.
- Add together the values calculated at points (3) and (6) above. This amount should be reported as other income in her SA return. (If the result is negative it may be carried forward and set against a future positive result.)
- As her holding became substantial on 1 March 2007 she will also need to calculate her accrued Capital Gain on the holding up to that date. This falls into charge only as she starts to dispose of her holding (CTM48760).
- As in previous examples amounts received as distributions should be reported in the normal way as dividends or interest (as the case may be).
Ms C will need to check periodically not just the value of her own holding but also thenet asset value of the fund so that she is aware that she is a substantial QIS holder.Once she becomes aware she can find out when her holding became substantial by dividingthe value of her holding by the net asset value of the entire fund for each day during theperiod since her last check. The first day on which this exceeds 10% (in this case 1 March2007) will be the day she acquired a substantial QIS holding.
As the increase in Miss Cs percentage holding was the result of a disposal by athird party she has an inadvertent breach of the 10% holding rule. However, inthis example, she has retained a holding of over 10% of the fund past 31 December 2007.This means that her holding in the QIS must be treated as substantial from 1 March 2007,and must continue to be treated as substantial until she has disposed of all her units inthat QIS.