Annex 1: Minor Changes in the Law Change 61: Relationships treated as loan relationships etc: power to change investments that are qualifying investments: section 497
This change extends the power in paragraph 8(8) of Schedule 10 to FA 1996 for the Treasury to amend paragraph 8 of that Schedule to extend or restrict the investments of a unit trust scheme or offshore fund that are qualifying investments, so that it also covers investments of open-ended investment companies (“OEICs”).
Paragraph 4 of Schedule 10 to FA 1996 treats a company’s holdings in unit trust schemes or offshore funds as rights under a loan relationship of the company if the schemes or funds fail the test set out in paragraph 8 of that Schedule. The test is failed when the market value of the scheme’s or fund’s “qualifying investments” exceeds 60% of the market value of all its investments. Paragraphs 4 and 8 of Schedule 10 are modified by regulation 95 of the Authorised Investment Funds (Tax) Regulations 2006 (SI 2006/964) so that they apply similarly to holdings in OEICs.
However, paragraph 8(8) of Schedule 10 gives power for paragraph 8 to be amended by order so as to extend or restrict the investments only of unit trust schemes or offshore funds that are qualifying investments and not those of OEICs. A similar effect might be achieved using the regulation-making power in section 17(3) of F(No.2)A 2005 to modify paragraph 8 in relation to OEICs.
Chapter 3 of Part 6 of this Act rewrites Schedule 10, incorporating the modifications relating to OEICs. In rewriting paragraph 8(8) in section 497 of this Act, the opportunity has been taken to extend the power in that paragraph to cover investments of OEICs, as well as unit trust funds and offshore funds, so that a single instrument can be used to extend or restrict the qualifying investments of all three investment vehicles.
Extending or restricting the investments of OEICs that are qualifying investments could be beneficial or adverse to a company with holdings in OEICs. But since the same effect could be obtained by making regulations under section 17(3) of F(No 2)A 2005, the change does not extend the overall scope of the Treasury’s powers.
This change has no implications for the amount of tax paid, who pays it or when. It affects only administrative matters.