MTT45110 - Particular entities and adjustments: Investment entities: Definitions of ‘investment entity’ and ‘insurance investment entity’

Definitions of investment entity and insurance investment entity are set out in section 236 of Finance (No.2) Act 2023.

See MTT10260 for guidance on the meaning of investment fund.

Investment entity

An entity is an investment entity if it is:

  • an investment fund,
  • a UK REIT or overseas REIT equivalent (see MTT10260),
  • an entity:
    • that is 95% owned by one or more investment funds, UK REITs, or overseas REITS, and
    • whose activities consist, wholly or almost wholly, of the holding of assets or the investment of funds for the benefit of those owners,
  • an entity:
    • that is 85% owned by one or more investment funds, UK REITs, or overseas REITS, and
    • whose income is wholly or almost wholly excluded dividends or excluded equity gains, or a mixture thereof, or
  • an insurance investment entity.

See MTT17060 for guidance on determining the percentage ownership interest of an entity held by a class of entities.

Insurance investment entity

Insurance companies invest in many different types of funds to generate income which can be used to pay policyholder claims in the future. Although these funds have many of the characteristics of an investment fund, they will often not meet the investment fund definition as they are held, directly or indirectly, by a single investor – the insurance company.

For insurance investment entities, there is no requirement for there to be multiple unconnected investors. An insurance investment entity may be wholly-owned by a single entity, or by a number of entities belonging to the same group.

An insurance investment entity must still meet the conditions at sections 236(1)(b) to (g) in the investment fund definition.

Conditions 236(2)(c) to (e) in the definition are designed to ensure that the definition is only met by investment funds of an insurance company that exist for the purpose of the insurance business and that the definition is not subject to manipulation or abuse from groups wanting to take advantage of the rules specific to investment entities.

Condition 236(2)(e) requires that regulated entities hold 100% of the ownership interests in the entity.  The percentage ownership of regulated entities is tested using the rules in section 244 (see MTT17050), so the ownership interests may be indirect, but there is no double counting.

The requirement may also be met if the entity is owned by a flow-through entity which is subject to regulations in the same manner as an insurance company.

See MTT17060 for guidance on determining the percentage ownership interest of an entity held by a class of entities.