IFM14410 - Overview

Tax rules for investment trusts were first introduced in 1965 and remained largely unchanged until the Investment Trust (Approved Company) (Tax) Regulations 2011 (S.I. 2011/2999) and amendments to Part 24 of the Corporation Tax Act 2010 were introduced for accounting periods commencing on or after 1 January 2012. Changes to the definition of an ‘investment company’ were made in Companies Act 2006 at around the same time.

The rules that apply from 1 January 2012 aim to facilitate the normal commercial activities of investment trust companies and to provide a proportionate approach to minor inadvertent breaches of the rules.

The types of company that may apply for approval should be pooled, risk-spreading investment vehicles that invest in a broad range of shares, securities or other assets, and that typically use professional managers to oversee their investments with the aim of providing income or capital returns, or a combination of both, for their investors.

To ensure the tax benefits available to investment trusts are not available to small groups of connected persons they must not be close for tax purposes and their ordinary shares must be admitted to trading on a regulated market so that they are freely available to a wide range of investors.

There are three eligibility conditions, as set out in CTA10/S1158, that must be met to be able to apply for approval as an investment trust (see IFM14420). In addition, the regulations (SI 2011/2999 – Investment Trust (Approved Company) (Tax) Regulations 2011) contain the prohibition on an investment trust company being close (see IFM14430), and prevent an investment trust from retaining more than a specified amount of their income (see IFM14440).

An investment trust also has certain ongoing obligations as set out in the regulations (see IFM14450).