IFM02330 - Authorised investment funds (AIFs): qualified investor schemes (QISs) and long-term asset funds (LTAFs): consequences of breaching the genuine diversity of ownership (GDO) condition

Tax consequences of breaching the Genuine Diversity of Ownership (GDO) condition

The tax consequences of breaching the GDO condition are explained in regulation 14B of SI 2006/964 for QISs and regulation 14DA of SI2006/964 for LTAFs.

In both cases, parts of the AIF regulations are disapplied so that a QIS or LTAF will (in broad terms) be taxed in accordance with normal corporation tax rules in relation to relevant accounting periods, but without the benefit of the small companies’ rate of corporation tax due to take effect from 1 April 2023.

The total profits should be calculated in the normal way for a company and taxable at the main CT rate. The company cannot make interest distributions and the special rules for dividend distributions by AIFs do not apply.

Chargeable gains accruing to the company will become chargeable to CT. If the company is an OEIC it is no longer eligible to be a property authorised investment fund (see IFM04000).

Corporate investors in the company are subject to the rules set out in regulation 51 – see IFM03320.