Tax Journal

The new investment trust rules

11 October 2012

New tax rules apply for accounting periods of investment trusts beginning this year. The new rules have been widely welcomed and, as well as altering the conditions that must be met to qualify as an investment trust, they borrow successful innovations from the authorised investment fund, REIT and offshore funds tax regimes. A new one-off advance approval process has been introduced as has a mechanism for dealing with breaches. In addition a ‘white list’ of transactions that are not to be considered trading has been introduced which gives a helpful measure of certainty.

New tax rules are intended to address concerns that the current tax regime acts as a barrier to launches of investment trusts. Ian Zeider reviews the detail.

Despite their name investment trusts are companies rather than trusts and their primary tax benefit is that they are exempt from tax on chargeable gains. Since being introduced in 1965 the tax rules for investment trusts had not been significantly changed. However, after a prolonged consultation exercise, new tax rules have been introduced which (other than certain provisions not discussed further in this article relating to holdings by investment trusts in non-reporting offshore funds) have effect for accounting periods of investment trusts beginning on or after 1 January this year (the ‘new rules’). As the government’s intention in enacting the new rules was to address concerns that the current tax regime acts as a barrier to new launches of investment trusts in the UK and several of the changes are based on innovations which are generally considered to be working well in the context of authorised investment funds, real estate investment trusts (REITs) and offshore funds, it is unsurprising that they have been broadly welcomed.

Corresponding company law changes have also been made. One of the most significant of which is the new rule allowing investment companies to distribute capital profits. The regulations implementing the company law changes came into effect on 6 April 2012.

Although the new rules have applied to many investment trusts since the beginning of this year, HMRC only published draft guidance on them in March (available via The deadline for comments on the draft guidance was 1 June 2012 and we are ...

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