IFM16210 - Exchanges of units for units in the same collective investment scheme
Section 103F Taxation of Chargeable Gains Act 1992
This section applies in two cases.
Case 1
Where:
- An investor in a CIS, exchanges units for other units of a different class in the same scheme which have substantially the same value, and
- The property subject to the scheme and the rights of investors are the same before and after the exchange ignoring any changes as a result of a variation in management charges. For this purpose, management charges mean the costs charged to the property of the scheme in respect of remunerating the parties operating the scheme, administering the scheme or investing the property subject to the scheme
Case 2
- Where there is a reorganisation of a CIS where all participants in the scheme, or all participants in a particular class of units in the scheme, exchange their units for new units in the scheme. With such a reorganisation there is no requirement that the rights of investors to share in the property of the scheme are the same immediately before and after the reorganisation.
If either Case 1 or Case 2 applies, chargeable gains rules apply as if the CIS was a company and units were shares - see CG51700C. In summary, the exchange of original units for new units is treated as not a disposal for chargeable gains purposes and the new units are treated as having been acquired at the same time as the original units.
Where an interest in units in a non-reporting offshore fund is exchanged or treated as exchanged for an asset which is not an interest in a non-reporting offshore fund, there is a disposal of the interests in the non-reporting offshore fund for a consideration equal to their market value at the time of the exchange. See IFM13284 (corporation tax payers) and IFM13386 & IFM13388 (income tax payers).
If either Case 1 or Case 2 applies, any income distribution on the new units is to be treated for the purposes of capital gains tax, corporation tax or income tax on the basis set out in Section 127. Where the original units exchanged by an investor are group 1 units, the new units will also be treated as Group 1 units for the purpose of the immediately following income distribution payable on the new units. If the original units are group 2 units, the new units will also be group 2 units.
For further comment on the meaning of group 1 and group 2 units see IFM02230.
Where case 2 applies the position after the reorganisation is treated in the same way as the result of a scheme of reconstruction under section 103H – see IFM16230.