HMRC internal manual

Investment Funds Manual

IFM17310 - Genuine Diversity of Ownership (GDO): Condition A

Condition A: The fund documents (authorised investment funds: Regulation 9A(3) SI2006/964 or offshore funds: Regulation 75(2) SI 2009/3001))

The purpose of Condition A is to ensure that access to the fund is made widely available to the intended categories of investors. To achieve this the fund must have committed to targeting the categories of investors it has specified and to market the fund and make it available to those target categories. This commitment should be binding and public.

Specifying in the fund documentation that the fund will be marketed and made available to a target market, which includes a large number of unconnected persons will always meet the requirements of this condition. For example, fund documents could state:

“The fund is suitable for retail and institutional investors. Units in the fund will be marketed and made available to these types of investors.”

“The fund is suitable for investors looking to make a medium to long term investment and who are looking for capital growth returns. Units in the fund will be marketed to these types of investors and will be made available to them by a network of distributors appointed by the fund.”

Unconnected persons in this context means any persons who are not connected under s1122 CTA 2010 for companies and ITA07/S993 and S994 for individuals.

For offshore funds, evidence of meeting the GDO does not have to be in a prescribed form; Condition A only requires that the fund produces ‘documents’ that contain the relevant statements and undertakings and that are made available to investors (including potential investors) and HMRC.

A fund may have one or more categories of investor and reference to categories is meant to be widely drawn. Some typical examples may include one or more of:

  • General retail investors - individual investors, who may be tax exempt ISA investors, with no requirements as to wealth levels.
  • High net worth investors - individual investors, where there is a significant minimum investment level.
  • Institutional investors - investors such as pension funds, sovereign wealth funds and insurance companies.

In determining whether condition A has been met, HMRC will look at the fund documents to ensure that they contain a statement that the units in the fund will be marketed and made widely available. The documents should also clearly specify the intended categories of investor. HMRC will consider whether these are sufficiently wide to ensure that the fund is not limited to a few specific persons named or implied by the given categories.