IFM14540 | Taxation of investment trusts: breaches of eligibility conditions and requirements of regulations: multiple breaches

The tax rules for investment trusts are intended to ensure that an approved company can conduct its affairs without the worry that a minor breach of the rules will automatically lead to a loss of its approved status. This is balanced however by a requirement for investment trusts to be diligent in complying with the rules and repeated minor breaches may lead to loss of approval. Regulation 27 provides that after a specified number of minor breaches within a certain period, the last such breach is a serious breach as follows:-

• where a minor breach of the same requirement occurs on three separate occasions within a ten year period, then the third breach is a serious breach, or

• where a minor breach of more than one of the requirements occurs on four separate occasions in a ten year period, then the fourth breach is a serious breach.

The ten year period begins on the first day of the period of account in which the first breach occurs. See IFM14534 for the definition of a ‘minor breach’.

If a single event results in more than one minor breach within a single period of account then only one minor breach is treated as arising.