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HMRC internal manual

Company Taxation Manual

HM Revenue & Customs
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Authorised investment funds: qualified investor schemes: substantial QIS holdings: disposals

Capital Gains / Chargeable Gains on disposal or partial disposal of substantial QISholdings

Holding substantial from inception

There is no profit or loss for Capital Gains purposes, nor any chargeable gain or lossfor CT payers (SI2006/964 Regulation 68(4)). The reason for this is that any gain in valueof the holding will have already been taken into account as ‘other income’ (ITpayers) or Case VI income (CT payers) (CTM48720).

Holding becomes substantial

This covers cases where the participant with a ‘substantial QIS holding’initially acquired units that did not amount to a substantial holding, but the holdinglater became substantial. This could be as a result of the acquisition of additional unitsby the participant (or by a connected or associated person). It could also be by an‘inadvertent breach’ which is not rectified, that is where theparticipant’s percentage holding is increased by a reduction in the net asset valueof the fund, and the participant does not reduce their holding to below 10% of the netasset value of the fund within the time limit (CTM48745).

When the holding first becomes substantial the participant must calculate the chargeablegain or loss that would have arisen had they disposed of their entire holding at the firstmeasuring date at its then market value (SI2006/964 Regulation 65). The first measuringdate is the date on which the holding first became a substantial QIS holding, (SI2006/964Regulations 64 and 60(1)). They must also calculate any taper relief due by reference tothe period ending on the first measuring date, (TCGA92/SCHA1/PARA16 as modified bySI2006/964 regulation 110). The gain thus calculated is then charged to tax only whenthere is a disposal of units as explained below.

At the time of disposal (or part disposal) the gain or loss calculated in the aboveparagraph (or a corresponding part of it) is treated as accruing for the purposes ofTCGA92, (SI2006/964 Regulations 67 and 68).

In case of partial disposal the provisions of TCGA92 apply to determine how the unitsdisposed of are to be identified. Further guidance on this point is at CG50500 onwards.

Any remaining chargeable gain or loss is treated as accruing for the purposes of TCGA 1992on the date of final disposal of the remaining units, (SI2006/964 Regulation 68(3)(a)).

The CG Manual gives further details of the calculation of Capital Gains Tax and chargeablegains for CT.

Note that any gain or loss which accrues following the first measuring date is not broughtinto account for the purposes of TCGA92 (SI2006/964 Regulations 67(4) and 68(4)). This isbecause any gains or losses following this date are treated as ‘other income’(IT) or Case VI income (CT), as the case may be (CTM48720).