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HMRC internal manual

Savings and Investment Manual

HM Revenue & Customs
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Collective investment schemes: introduction

Types of pooled investments

A collective investment scheme is a form of investment fund that enables a number of investors to ‘pool’ their assets and invest in a professionally managed portfolio of investments. Typically the portfolio will comprise gilts, bonds and quoted equities, or less commonly unquoted investments or property. Investors in such schemes are able to spread or reduce the risk that is associated with investment in such assets as well as gain the benefits of professional management.

Collective investment schemes may or may not be authorised and regulated by the Financial Services Authority (FSA), under the terms of the Financial Services and Markets Act 2000 (FSMA2000).

Certain types of ‘authorised’ collective investment scheme are taxed under corporation tax rules. SAIM6020 deals only with the income tax treatment of the investor in such schemes. See CTM48100 onwards for the corporate tax charge on authorised schemes.

In the case of ‘unauthorised’ schemes, both the scheme trustees and the investors are chargeable to income tax. SAIM6030 onwards explains the taxation of both the trustees and the investors.

This chapter of the Savings and Investment Income Manual does not deal with the tax treatment of investors in Real Estate Investment Trusts who receive ‘Property Income Dividends’. See the chapter on Dividends and Other Distributions from companies (SAIM5300 onwards).

Authorised Investment Funds (AIFs)

These are funds authorised and regulated by the FSA. They include authorised unit trusts (AUTs) and open-ended investment companies (OEICs).

The guidance in the Savings and Investment Manual explains only the taxation of the investors in AIFs. See the Company Taxation Manual for details of the taxation of the scheme itself.

Unauthorised Unit Trusts (UUTs)

These are unit trusts which have not been authorised by the FSA under Section 243 of FSMA2000. The guidance in the Savings and Investment Manual explains the taxation of both the investor and the scheme’s trustees.

Offshore Funds

The information in this manual applies to transactions up to 30 November 2009. The Offshore Funds Manual is currently being updated for the offshore funds regime from 1 December 2009.

These are collective investment schemes set up outside the UK. They also include some close ended companies that may not fall within the definition of a collective investment scheme in section 237 FSMA2000. The participants in these companies can expect to be able to redeem their investment within a foreseeable time. The funds are not subject to UK tax but UK resident investors in those funds are subject to special tax rules. They may take various legal forms.