CTM48740 | Authorised investment funds: qualified investor schemes: substantial QIS holding: ‘inadvertent breach’

SI2006/964 Regulation 63

In most cases, when a participant in a qualified investor scheme (QIS) acquires aholding of 10% or more of the net asset value of a QIS, either alone or together withassociates or connected persons (CTM48710), then the holdingwill be treated as a ‘substantial QIS holding’ from the day it reaches orexceeds 10% of the net asset value. The 10% is calculated after aggregating the holdingwith those of associates or connected persons.

However it is recognised that this could lead to some participants in a fund who neverintended to become substantial holders breaching this 10% limit through the actions ofother unconnected persons.

In particular, if a major holder in a QIS were to sell all their units and if these unitswere then to be cancelled the net asset value of the fund would be reduced. This wouldhave the effect of increasing the proportion held by each of the remaining unit (or share)holders.

A participant whose proportionate holding is thus increased (without the number of unitsbeing increased) to 10% or more of the net asset value of the fund may continue to receivethe same tax treatment given to other participants (who do not have substantial QISholdings) provided that their holding is reduced to below 10% of net asset value within atime limit (CTM48745).

Provided that:

1. the holding did not become substantial as a result of the purchase of units (whether by the participant or by connected or associated persons (CTM48710)), and

2. the participant reduces their holding to below 10% of the net asset value of the fund. (note that this must be less than 10% after aggregation with holdings of associated or connected persons), and

3. that this is done within the time limit (CTM48745),

then the participant will not be treated as having a substantial QIS holding at anytime.