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HMRC internal manual

Savings and Investment Manual

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HM Revenue & Customs
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Collective investment schemes: unauthorised unit trusts: loan relationships

Loan relationships rules apply to holdings by companies

Where a company holds units in an unauthorised unit trust and that unauthorised unit trust fails the non-qualifying investments test at any time in the company’s accounting period, then the company’s unit holdings are taxed as if they were rights under a creditor relationship of the company unit holder. Such holdings are therefore within the legislation on loan relationships. See the Corporate Finance Manual (CFM3000).

Where a holding becomes one which fails the non-qualifying investments test at any time in an accounting period of the company, the company is deemed to have acquired a loan relationship at commencement of that accounting period. For the purposes of the loan relationships legislation the value of that holding at the beginning of that period will be its fair value in accordance with CTA10/PT9.

Non-qualifying investment test: CTA09/S494

An unauthorised unit trust fails the non-qualifying investments test at any time when the market value of its qualifying investments exceeds 60% of the market value of all its investments.

Qualifying investments means

  1. money placed at interest
  2. securities
  3. shares in a building society
  4. qualifying holdings in a unit trust scheme or offshore fund or an open-ended investment company
  5. derivative contracts whose underlying subject matter consists wholly of any one or more of the matters referred to in (a) to (d) above, and currency
  6. contracts for difference whose underlying subject matter consists wholly of any one or more of the following: interest rates or creditworthiness, and currency
  7. derivative contracts not within paragraph (e) or (f) where there is a hedging relationship between the derivative contract and an asset within paragraphs (a) to (d) above
  8. alternative finance arrangements.

Paragraphs (e) to (h) only apply to accounting periods beginning on or after 1 April 2006.

Paragraphs (e) and (f) first applied to accounting periods beginning on or after 1 October 2002 and for accounting periods beginning before 1 April 2006 did not include currency.

CFM13230 onwards gives guidance on determining the underlying subject matter of a derivative contract.

A holding in a unit trust or offshore fund or open-ended investment company is a qualifying holding if at any time in the accounting period that unit trust or offshore fund or open-ended investment company would fail the non-qualifying investments test.

Investments do not include cash awaiting investment.