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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Deemed loan relationships: holdings in investment funds: qualifying investments

Qualifying investments test

An OEIC, unit trust, or offshore fund fails to meet the qualifying investments test at any time when the market value of its qualifying investments exceeds 60 per cent of the market value of all its investments (CTA09/S493). ‘Qualifying investments’ are listed in CTA09/S494:

  1. money placed at interest
  2. securities
  3. shares in a building society
  4. qualifying holdings in an OEIC, unit trust or offshore fund
  5. alternative finance arrangements (CFM44000)
  6. derivative contracts whose underlying subject matter (see CFM50500) consists wholly of any one or more of the matters in (a) to (e) above (other than diminishing shared ownership - see CFM44070), and currency
  7. contracts for differences whose underlying subject matter consists wholly of any one or more of the following: interest rates, creditworthiness, and currency
  8. derivative contracts not within paragraph (f) or (g) where there is a hedging relationship between the derivative contract and an asset within regulations (a) to (d) above.

A holding in a unit trust, offshore fund or OEIC is a qualifying holding if at any time in the accounting period that unit trust, fund or OEIC would itself fail to meet the qualifying investments test.

‘Investments’ does not include cash awaiting investment.

Hedging relationship is defined at CTA09/S496. The hedging instrument and hedged item must be designated as such by the company, scheme or fund - CFM27060 and CFM57050).