Collectives: exemptions: exempt investments - interests other than in collective investment schemes - derivatives
Where the terms of a collective investment scheme (such as a unit trust or Open-Ended Investment Company (OEIC)) permit investment by the scheme in the holding only of ‘exempt investments’, FA86/S99(5A)(b) provides that no charge to Stamp Duty Reserve Tax (SDRT) arises under FA99/SCH19 or FA86/S87 when units or OEIC shares in the scheme are surrendered or otherwise transferred.
Section 99(5B) Finance Act 1986 provides rules for determining when an investment (other than an interest held in a collective investment scheme) can be regarded as an exempt investment.
Investments in derivative financial products
A derivative is an exempt investment if, and only if, it relates wholly to one or more exempt investments (FA86/S99(5B)(c)). So, for example, an index tracking derivative would only be exempt if the index or indices concerned did not include any non-exempt investments.
Where a fund’s investments include derivative holdings i.e. options, futures, forward contracts etc, each individual derivative, for the purpose of the SDRT FA99/SCH19 monthly notice, is to be valued by reference to the open market value or price rather than on any other valuation basis. A derivative that is not attractive to a potential purchaser, as it has no intrinsic value or of negative worth, will have no market value and therefore a zero value for SDRT.
Where call (buy) and put (sell) options relating to the same underlying property are held as investments of the fund, each should be valued in their own right (with no netting value recorded) as they can be traded independently.
Cash or other funds held for day to day management are not regarded as investments (FA86/S99(5B)(d)).
See STSM101010 for the meaning of a collective investment scheme.
See STSM101020 for the meaning of a unit trust.
See STSM101050 for the meaning of an open-ended investment company.
See STSM021220 for information on convertible loan capital.
See STSM110000 for information on derivatives.
See STSM111010 for the meaning of an option.