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AIC wins concessions in HMRC’s investment trust tax reforms

HM Revenue & Customers has revised its plans to reform the tax rules for investment trusts, following lobbying by the Association of Investment Companies.

The Government announced plans to modernise the tax rules for investment trusts in its Budget 2010 in June, after acknowledging they were written in 1965 and left largely unchanged. In July it issued a consultation on the plans.

In a summary of responses, published this morning, HMRC says the industry has been “generally very supportive” but the AIC was “strongly against” some proposals.

These included plans to reduce the amount of investment income the trusts can retain, to build up reserves for future times when income levels are lower, from 15 per cent to 10 per cent.

HMRC says in light of the AIC’s responses the trusts “should continue to be able to retain up to 15 per cent of their income, measured by reference to total income rather than income from shares and securities”.

HMRC has also dropped plans to change its tax treatment around the “close company test”, where the trusts cannot be controlled by fewer than five shareholders.

The reforms will still include measures that were welcomed by the AIC, including the removal of tax restrictions on how the trusts invest in other companies. These will be replaced with new risk tests.

HMRC will also deliver clarity over which transactions are treated as investments for tax purposes, remove annual approval processes for trust directors and remove the “cliff edge problem” in certain taxes.

The Government is set to publish the reforms in its Finance Bill in Spring 2011.

Financial secretary to the Treasury Mark Hoban says: “I am pleased that so many interested parties have engaged actively with us in this process to date, both in written responses to the consultation document and in meetings with officials.”

AIC director general Ian Sayers [pictured] says: “The Government has listened carefully to the industry’s concerns and adjusted its approach to avoid causing potential problems for the sector. This paves the way for legislation which will deliver significant benefits for investment trusts. It will increase their commercial flexibility and give them the capacity to develop into new areas of investment.”


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