Co-ownership Authorised Contractual Schemes (CoACS) etc and taxation of investors
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Co-ownership Authorised Contractual Schemes (CoACS) etc and taxation of investors
Co-ownership Authorised Contractual Schemes (CoACS) etc and taxation of investors
Tue 19 Dec 2017
Clarification of the tax computation of gains by investors in CoACS etc has now been provided in the form of new regulations and draft guidance by HMRC.
Background
Authorised contractual schemes are a form of tax transparent fund (TTF) that is an ‘authorised fund’ and that is an alternative to unit trusts and open ended investment companies.
They have traditionally been used by pension funds as a means pooling assets and getting economies of scale and concentrations of investment expertise, while retaining access to double tax treaties (provided both jurisdictions recognise an Authorised Contractual Scheme (ACS) as transparent). They may also be used to accommodate a range of institutional investor types and could be considered by real estate manages or investors as an authorised alternative to offshore property unit trusts.
A regulatory requirement for a direct investor in an ACS is that they must either invest at least £1m or be a professional institutional investor (set out at Annex II section 1 categories 1-4 of the Markets in Financial Instruments Directive (2004/39/EC). An ACS can either be a co-ownership fund or a limited partnership fund
A summary of the UK tax treatment of the different types of fund is set out in the table below:
| Type of fund | Tax treatment of income | Tax treatment of gains |
| Co-ownership fund | The fund is not liable to tax on income and is not required to file a tax return.Participants are taxable on their share of the fund’s income as it arises. | The fund is not liable to tax on any gains and is not required to submit a UK tax return.Investors are subject to tax on gains realised on their units in the fund. They are not taxable on movements in the underlying assets held in the fund. |
| Limited partnership fund | The fund is not liable to tax on any income. It must, however, submit a tax return detailing the income allocated to the partners.Participants are taxable on their share of the fund’s income as it arises. | The fund is not liable to tax on any gains but is required to submit a UK tax return detailing how the gains are divided amongst the partners.Gains made on assets within the fund are treated as arising directly to the partners. |
A draft HMRC manual has been issued. Please note that the manual does not cover SDLT (to be covered in a future consultation), nor capital allowances (expected to be added in due course).
New regulations amending TCGA 1992
SI 2017/1204 has been issued to clarify how investors of units in Co-ownership Authorised Contractual Schemes (CoACS) and offshore transparent funds should compute gains on disposal of their units. It comes into force on 1 January 2018.
SI 2017/1204 amends the capital gains rules to align the capital gains treatment of ACS’s and offshore transparent funds. It excludes offshore transparent funds from the scope of TCGA 1992 s.99 and s99B (application of TCGA to unit trusts and to disposal of accumulation units). It also removes s103A and s103B (application of the Act to certain offshore funds and s99B to transparent funds). It also extends the scope of s103D (currently only applying to ACSs) to offshore tax transparent funds and inserts new s103DA (identifying a unit in a tax transparent fund as a security). Those provisions also set out how to compute the gains and the interaction with the loan relationship and derivative contract rules and the expenditure qualifying for capital allowances.
There are further provisions clarifying the CGT treatment of insurers’ seed investment into collective investment schemes.
To discuss the UK tax implications of collective investment schemes please get in touch with Stephen Brown or a member of the Mazars tax team
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