IFM16220 - Exchange of units for those in another Collective investment scheme
Section 103G Taxation of Chargeable Gains Act 1992
This section applies in two cases where investors in CIS‘A’ exchange units for new units in CIS ‘B’.
Case 1
Where units in ‘B’ are issued as the result of a general offer which fulfils two conditions:
- It is made either to all investors in ‘A’ or to all those holding units of a particular class.
- As a result of the exchanges, the property subject to CIS ‘B’ includes units in CIS ‘A’ giving rights to more than 50% of the capital and more than 50% of the income of ‘A’.
Case 2
Where under an arrangement:
- investors exchange units in ‘A’ for units in ‘B’ which have substantially the same value, and
- As a result of the exchanges, at least 85% of the property held by ‘B’ is constituted by units in ‘A’.
If either Case 1 or Case 2 applies, chargeable gains rules apply as if CIS ‘A’ and CIS ‘B’ were the same company and units were shares - see CG51700C. In summary, the exchange of units in ‘A’ for units in ‘B’ is treated as not a disposal for chargeable gains purposes and the ‘B’ units are treated as having been acquired at the same time as the original ‘A’ 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).
Section 103G may be in point where a PAIF (property authorised investment fund) makes an offer for an AUT (authorised unit trust) invested in property investments.
Section 103G only applies where the arrangements take place for bona fide commercial reasons and not for the avoidance of tax– see IFM16260.