Draft guidance re ‘securities’ held by investment trusts
HMRC have published draft guidance relating to a change in the interpretation of the meaning of the term ‘securities’ within section 842, ICTA 1988. This section of legislation sets out the conditions an investment trust company must meet to be treated as an approved investment trust for taxpurposes.
The term ‘securities’ has not previously been defined in this context . HMRC intend that, once finalised, the draft interpretation of the term highlighted below will be included in their Company Taxation Manual.
This change has come about following the introduction of new regulations which allow approved investment trusts to make interest distributions.
In practice the interpretation of the term ‘securities’ will be defined by HMRC as follows:
- all UK and overseas Government and public securities (for example, gilts),
- (short or long term) loan instruments that are issued, such as:
– transferable debentures
– loan stock
– transferable loan notes, certificates of deposit
It will not include:
- units in a collective investment scheme (but they are treated as shares in companies under SP3/97)
- rights under a stakeholder pension scheme
- contracts of insurance (for example, second hand life insurance policies)
- bank loans/simple loan agreements.
The draft guidance is open for consultation until 1 November 2009. Once the guidance is finalised, any new arrangements entered into after 1 January 2010 must fall within the interpretation of securities above in order for the investment trust company to be treated as an approved investment trust for tax purposes.