CG20600 - Investment clubs

What is an investment club?

The simplest definition of an investment club is a group of people who join together to invest, primarily on the Stock Exchange. Each club should have a constitution and rules by which it is run. Amongst other things, these rules will lay down what proportionate part of the club's investments is owned by individual members.

Members will be entitled to a share of income received from the investments, and of gains or losses made on their disposal, in accordance with the proportion of the club's investments that they own. A member's share of income and gains is included as part of his or her personal income and gains and qualifies in the same way for any available personal allowances and reliefs to which they may be entitled. Investment clubs are not normally charged to Corporation Tax as they do not fall within the company tax provisions, see CTM40650.

The members' proportionate entitlement changes every time capital is invested in or withdrawn from the club.

Return of members’ gains

The Treasurer, or other officer of the Club is responsible for computing the capital gain and letting each individual member know their share of income and gains for inclusion in the individual’s self-assessment tax return.

Individual club members are responsible for notifying HMRC of any income or gains received which may affect their liability to tax. Each member will have to show on his or her self assessment return their share of any gains arising on the disposal of the club's investments, and of any income derived from the investments.

Since April 2013 Treasurers are no longer required to make a return of members’ gains to HMRC, however sufficient records should be kept by the Treasurer or other officer who handles the club's money as they may be required to make a return under Para. 65 Sch. 23 FA11. The person(s) in whose name(s) the club's investments are held may also be required to make a return under s24 TMA70.

Form 185 can be used by Treasurers to show a member's proportionate share of the club's gains and income. Any reasonable method provided by the rules of the club for dividing gains between members should be accepted so long as it is based on the proportionate shares of the investments held by members and is consistently applied.

What happens when a member leaves?

When a member leaves a club, they withdraw the whole of their investment. This may give rise to chargeable gains or allowable losses. But when calculating the gains or losses on the disposal of their investment in the club, it is necessary to take into account the fact that they may have had income, gains or losses attributed to them over the period of their membership, without the actual income or gains being distributed to them. So the calculation of the chargeable gains or allowable losses when they leave the club must be adjusted for these items.

When leaving the club, the member disposes not only of their interest in the clubs investments, but also of their rights as a member. Any gain on leaving a club is treated as a gain on the disposal of those rights.

The club may have to sell assets to provide the funds to distribute to a member who is leaving. The gains or losses on these disposals should be allocated among all the members, including the departing member.