UK - Tax Transparent Fund

Who is likely to be affected?

Investors in the new tax transparent fund (TTF) pooled investment vehicle are expected to be UK authorised unit trusts, Open Ended Investment Companies (OEICs), pension funds and insurance companies and similar European investors.

General description of the measure

The measure will facilitate the appropriate tax treatment of the new regulated asset pooling vehicle, the TTF, covering capital gains and stamp taxes on shares. The new regulated vehicle is expected to be in place by summer 2012.

Policy objective

The policy objective is to ensure that the UK can compete as a fund domicile for tax transparent funds. The proposed tax measures are designed to remove any tax obstacles to achieving that objective for TTFs, which are being introduced to facilitate the setting up of UK pooled "master fund" investment vehicles under the Undertakings for Collective Investment in Transferable Securities (UCITS) IV Directive (2009/65/EC of the European Parliament and of The Council).

Background to the measure

The Government announced at Budget 2011 the introduction of a new TTF vehicle to be in place in the summer of 2012. It was then announced in May 2011 that, as most of the legislation required was regulatory and not tax, this would be taken forward as a regulatory consultation. A regulatory consultation document will be published before the end of 2011 or in early 2012. The tax measures in the Finance Bill will provide the necessary powers to provide appropriate tax treatment for investors in TTFs in line with the policy objective.

Detailed proposal

Operative date

The measure will have effect from Royal Assent to Finance Bill 2012.

Current law

The TTF regulated vehicle is not yet in place so no specific provisions exist for these vehicles.

Proposed revisions

Legislation will be introduced in Finance Bill 2012 which takes a power to make regulations about the tax treatment of participants in collective investment schemes for the purposes of tax on capital gains.

Specific anticipated uses of the power will be to:

• provide that, for the purposes of tax on chargeable gains, assets held by investors as part of certain tax transparent collective investment schemes will not be chargeable assets and that, instead, the investor’s interest in the scheme will be treated as if it were a chargeable asset;
• provide that, for such chargeable assets, section 212 of the Taxation of Chargeable Gains Act 1992 (TCGA) will apply to interests within the long term fund of an insurance company;
• provide a relief for insurance companies which transfer assets to such transparent schemes to ensure that no chargeable gain arises at the point of transfer, together with a provision to prevent abuse of that relief; and,
• enable the provisions in TCGA to be adapted for use at the merger and reconstruction of new and existing types of collective investment scheme so that the provisions will work when applied to interests in tax-transparent schemes and be simplified in application to existing schemes.

For stamp duty and stamp duty reserve tax, it is proposed to take a power to give relief or exemption for transactions relating to collective investment schemes in the context of TTFs.

Specific anticipated uses of this power will be to provide relief:

• where the TTF acquires securities in exchange for issuing units in itself;
• where the TTF only has charitable investors; and,
• in certain other circumstances to be determined following the consultation exercise.

No change will be made to Schedule 19 to the Finance Act 1999 as TTFs will be outside the charge to SDRT under that Schedule.

On corporation tax, it is intended that the regulatory legislation to be consulted upon shortly will add the new TTF funds to the exclusions from charge in section 1121 of Corporation Tax Act 2010, to the extent necessary to put beyond doubt that the fund, which will not be a legal entity, is not chargeable to UK corporation tax.


Draft regulations

The Collective Investment Schemes (Tax Transparent Funds, Exchanges, Mergers and Schemes of Reconstruction) Regulations 2012 (PDF 113K) 

The Stamp Duty and Stamp Duty Reserve Tax (Collective Investment Schemes) (Exemptions) Regulations 2012 (PDF 33K)

The Value Added Tax (Finance) Order 2012 (PDF 23K)