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CTM48735 | authorised investment funds: qualified investor schemes: substantial QIS holding: tax calculation: example 2

From HM Revenue & Customs · Company Taxation Manual

Holding becomes substantial during the tax year (2007/08)

The qualified investor scheme (QIS) has reporting dates of 30 June and 31 December. Allunits in the QIS have equal rights to the net asset value.

At 30 June 2006 Mr X has a holding of 6% of the units in the fund. On 31 January 2007 hepurchases further units so that his holding now amounts to 10% of the new net asset valueof the fund.

On 1 June 2007 he sells units reducing his holding to 3% of the fund and on 1 April hesells further units reducing his holding to 1% of the fund.

The following thirteen steps set out the calculation which Mr X will need to do to findthe amount of ‘other income’ he will need to include on his tax return inrespect of his QIS holding. As in previous examples distributions received from the QISshould be reported as dividends or as interest (as the case may be) in the normal way.

Please see also the notes which follow.

  1. Calculate the value of his holding as at the end of 31 January 2007 (that is after the purchase of units made on that day) at the ‘bid price’ or single price ruling on that date - this is the last measuring date before the tax year.

  2. Calculate the value of his holding (as at the start of 1 June 2007 (before the sale made on that day) at the ‘bid price’ or single price ruling on that date - this is the first measuring date in the tax year.

  3. Subtract the result of the calculation at (1) from that at (2).

  4. Calculate the value of his holding as at the end of 1 June 2007 (after the sale made on that day) at the ‘bid price’ or single price ruling on that date. Note that, due to the sale of units during that day this will be lower than the value calculated at (2) above.

  5. Calculate the value of his holding as at the start of 30 June 2007 at the ‘bid price’ or single price ruling on that date.

  6. Subtract the result of the calculation at (4) from that at (5).

  7. Calculate the value of his holding as at the end of 30 June 2007 at the ‘bid price’ or single price ruling on that date. (This will be the same as the result at point 5 above.)

  8. Calculate the value of his holding as at the start of 31 December 2007 at the ‘bid price’ or single price ruling on 31 December 2007.

  9. Subtract the result of the calculation at (7) from that at (8).

  10. Calculate the value of his holding as at the end of 31 December 2007 at the ‘bid price’ or single price ruling on 31 December 2007. (The same result as at point 8 above.)

  11. Calculate the value of his holding as at the start of 1 April 2008 (that is before the sale of units made on that day) at the ‘bid price’ or single price ruling on1 April 2008. This is the last measuring date in the year.

  12. Subtract the result of the calculation at (10) from that at (11).

  13. Add together the results obtained at (3), (6), (9) and (12) above. This total should be reported as ‘other income’ in Mr X’s Self- Assessment. (If the result is negative it may be carried forward and set against a future positive result.)

  14. As in the previous example amounts received as distributions should also be reported as dividends or interest in the normal way.

Notes

Note that Mr X’s holding remains substantial for as long as he holds any units inthe fund. However if Mr X sells his entire holding and then repurchases units in the samefund then the new purchase is treated as an entirely different holding and will notnecessarily be a ‘substantial QIS holding’. The rules set out at [### Holding becomes substantial during the tax year (2007/08)

The qualified investor scheme (QIS) has reporting dates of 30 June and 31 December. Allunits in the QIS have equal rights to the net asset value.

At 30 June 2006 Mr X has a holding of 6% of the units in the fund. On 31 January 2007 hepurchases further units so that his holding now amounts to 10% of the new net asset valueof the fund.

On 1 June 2007 he sells units reducing his holding to 3% of the fund and on 1 April hesells further units reducing his holding to 1% of the fund.

The following thirteen steps set out the calculation which Mr X will need to do to findthe amount of ‘other income’ he will need to include on his tax return inrespect of his QIS holding. As in previous examples distributions received from the QISshould be reported as dividends or as interest (as the case may be) in the normal way.

Please see also the notes which follow.

  1. Calculate the value of his holding as at the end of 31 January 2007 (that is after the purchase of units made on that day) at the ‘bid price’ or single price ruling on that date - this is the last measuring date before the tax year.

  2. Calculate the value of his holding (as at the start of 1 June 2007 (before the sale made on that day) at the ‘bid price’ or single price ruling on that date - this is the first measuring date in the tax year.

  3. Subtract the result of the calculation at (1) from that at (2).

  4. Calculate the value of his holding as at the end of 1 June 2007 (after the sale made on that day) at the ‘bid price’ or single price ruling on that date. Note that, due to the sale of units during that day this will be lower than the value calculated at (2) above.

  5. Calculate the value of his holding as at the start of 30 June 2007 at the ‘bid price’ or single price ruling on that date.

  6. Subtract the result of the calculation at (4) from that at (5).

  7. Calculate the value of his holding as at the end of 30 June 2007 at the ‘bid price’ or single price ruling on that date. (This will be the same as the result at point 5 above.)

  8. Calculate the value of his holding as at the start of 31 December 2007 at the ‘bid price’ or single price ruling on 31 December 2007.

  9. Subtract the result of the calculation at (7) from that at (8).

  10. Calculate the value of his holding as at the end of 31 December 2007 at the ‘bid price’ or single price ruling on 31 December 2007. (The same result as at point 8 above.)

  11. Calculate the value of his holding as at the start of 1 April 2008 (that is before the sale of units made on that day) at the ‘bid price’ or single price ruling on1 April 2008. This is the last measuring date in the year.

  12. Subtract the result of the calculation at (10) from that at (11).

  13. Add together the results obtained at (3), (6), (9) and (12) above. This total should be reported as ‘other income’ in Mr X’s Self- Assessment. (If the result is negative it may be carried forward and set against a future positive result.)

  14. As in the previous example amounts received as distributions should also be reported as dividends or interest in the normal way.

Notes

Note that Mr X’s holding remains substantial for as long as he holds any units inthe fund. However if Mr X sells his entire holding and then repurchases units in the samefund then the new purchase is treated as an entirely different holding and will notnecessarily be a ‘substantial QIS holding’. The rules set out at](https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm48710) apply to determine its status.

For a CT payer with an accounting period matching the above the same calculation wouldapply except that the amount calculated at point (13) would be reported as Schedule D CaseVI income and distributions would be either treated as dividend distributions (CTM48515) or interest distributions (CTM48520)as appropriate.