IFM02265 - Authorised investment funds (AIFs): taxation of funds: investment transactions - anti-avoidance

SI2006/964 Regulations 52B, 52C and 52D - diversely owned AIFs and financial traders

Because certain profits from ‘investment transactions’ cannot be taxed as trading profits when carried out by a diversely owned AIF to which regulation 14E applies, special rules are needed to prevent financial traders sheltering profits from these types of transactions in such an AIF. Without such rules, what would otherwise be taxable profits of the financial trader could be rolled-up as exempt capital gains in the AIF and later realised as a chargeable gain when the trader disposes of the units.

The special rules are set out in SI2006/964 Regulations 52B to 52D. They ensure that financial traders holding units in a diversely owned AIF to which regulation 14E applies must include all distributions and realised and unrealised gains or losses in respect of those units in the computation of their trading profits.

These rules target investors in diversely owned AIFs who are financial traders. They do not affect in any way the tax treatment of the diversely owned AIF itself.

Further guidance on these rules can be found at:

  • IFM03330 (for investors within the charge to corporation tax); and
  • IFM03360 (for investors within the charge to income tax).