Finance Act, 1993

Special investment schemes.

13.—(1) (a) In this section “inspector”, “ordinary shares”, and “qualifying shares” have the meanings assigned to them by section 36A (inserted by this Act) of the Corporation Tax Act, 1976 ;

“authorised unit trust scheme” means a unit trust scheme which is, or is deemed to be, an authorised unit trust scheme within the meaning of the Unit Trusts Act, 1990 , and which has not had its authorisation under that Act revoked;

“market value” has the meaning assigned to it by section 49 of the Capital Gains Tax Act, 1975 ;

“special investment scheme” means an authorised unit trust scheme in respect of which the conditions specified in subsection (2) are satisfied;

“special investment units” means units, sold to an individual on or after the 1st day of February, 1993, by the management company or trustee under an authorised unit trust scheme, in respect of which—

(a) the conditions specified in subsection (3) are satisfied, and

(b) a declaration of the kind specified in subsection (4) has been made to the management company or trustee;

“specified qualifying shares”, in relation to a special investment scheme, means qualifying shares in a company which, when the shares are acquired for the scheme, has an issued share capital the market value of which is less than £100,000,000;

“units”, in relation to an authorised unit trust scheme, means any units (whether described as units or otherwise) into which are divided the beneficial interests in the assets subject to any trust created under the scheme.

(b) A reference in this section to the management company or trustee under an authorised unit trust scheme shall be construed as a reference to the person in whom are vested the powers of management relating to property for the time being subject to any trust created in pursuance of the scheme or, as the case may be, to the person in whom such property is or may be vested in accordance with the terms of the trust.

(2) The conditions referred to in the definition of “special investment scheme” in subsection (1) are as follows:

(a) the beneficial interests in the assets subject to any trust created under the authorised unit trust scheme concerned shall be divided into special investment units;

(b) the aggregate of the consideration given for shares which are, at any time before the 1st day of February, 1994, assets subject to any trust created under the scheme shall not be less than—

(i) as respects qualifying shares, 40 per cent., and

(ii) as respects specified qualifying shares, 6 per cent.,

of the aggregate of the consideration given for the assets which are at that time subject to any such trust;

(c) the aggregate of the consideration given for shares which are, at any time within the year ending on the 31st day of January, 1995, assets subject to any trust created under the scheme shall not be less than—

(i) as respects qualifying shares, 45 per cent., and

(ii) as respects specified qualifying shares, 9 per cent.,

of the aggregate of the consideration given for the assets which are at that time subject to any such trust;

(d) the aggregate of the consideration given for shares which are, at any time within the year ending on the 31st day of January, 1996, assets subject to any trust created under the scheme shall not be less than—

(i) as respects qualifying shares, 50 per cent., and

(ii) as respects specified qualifying shares, 12 per cent.,

of the aggregate of the consideration given for the assets which are at that time subject to any such trust;

(e) the aggregate of the consideration given for shares which are, at any time on or after the 1st day of February, 1996, assets subject to any trust created under the scheme shall not be less than—

(i) as respects qualifying shares, 55 per cent., and

(ii) as respects specified qualifying shares, 15 per cent.,

of the aggregate of the consideration given for the assets which are at that time subject to any such trust;

and, for the purposes of paragraphs (b) to (e), the amount of the consideration given for assets subject to any trust created under the scheme shall be determined in accordance with the provisions of section 9 of the Capital Gains Tax Act, 1975 , and paragraph 4 of Schedule 1 to the Capital Gains Tax (Amendment) Act, 1978 .

(3) The conditions referred to in the definition of “special investment units” in subsection (1) are as follows:

(a) the special investment units shall be so designated in the trusts created under the authorised unit trust scheme concerned;

(b) the aggregate of payments made on or before any day to the management company or trustee under the scheme by or on behalf of an individual, in respect of special investment units owned, whether jointly or otherwise, by the individual on that day, shall not exceed £50,000;

(c) the management company or trustee under the scheme shall ensure that the aggregate of the market value of special investment units owned, whether jointly or otherwise, by any individual does not exceed £50,000 at any time on or after the fifth anniversary of the date on which the first payment was made by or on behalf of that individual in respect of those units;

(d) special investment units shall not be sold to or owned by an individual who is not of full age;

(e) special investment units shall only be sold to an individual—

(i) who shall be beneficially entitled to, and

(ii) to whom there shall be paid,

all amounts payable in respect of those units by the management company or trustee under the scheme;

(f) except in the case of special investment units sold to and owned jointly by, and only by, a couple married to each other, units shall not be jointly owned;

(g) except in the case of special investment units bought by and owned jointly by, and only by, a couple married to each other, an individual who owns such units of an authorised unit trust scheme shall not buy or own such units of another authorised unit trust scheme;

(h) where a couple married to each other buy and jointly own special investment units of an authorised unit trust scheme, they shall not buy or own such units in any other such scheme either individually or jointly, other than units which they buy and jointly own in one other such scheme,

and—

(i) for the purposes of paragraphs (b) to (d) and (f) to (h), references to ownership of special investment units shall be construed as references to beneficial ownership of the units, and

(ii) for the purposes of paragraphs (b) and (c), a disposal of special investment units of an authorised unit trust scheme, acquired by an individual at different times, shall be assumed to be a disposal of units acquired later, rather than of units acquired earlier, by him.

(4) The declaration referred to in the definition of “special investment units” in subsection (1) is a declaration in writing to the management company or trustee under an authorised unit trust scheme which—

(a) (i) is made by the individual (hereafter in this section referred to as “the declarer”) to whom any amounts are payable by the management company or trustee in respect of units in respect of which the declaration is made, and

(ii) is signed by the declarer,

(b) is made in such form as may be prescribed or authorised by the Revenue Commissioners,

(c) declares that at the time when the declaration is made the conditions specified in paragraphs (d) to (h) of subsection (3) are satisfied in relation to the units in respect of which the declaration is made,

(d) contains the full name and address of the individual beneficially entitled to any amounts payable in respect of the units in respect of which the declaration is made,

(e) contains an undertaking by the declarer that if any of the conditions referred to in paragraphs (d) to (h) of subsection (3) ceases to be satisfied in respect of the units in respect of which the declaration is made, the declarer will notify the management company or trustee accordingly, and

(f) contains such other information as the Revenue Commissioners may reasonably require for the purposes of this section.

(5) (a) The management company or trustee under an authorised unit trust scheme shall—

(i) keep and retain for not less than the longer of the following periods, that is to say:

(I) a period of 6 years, and

(II) a period which, in relation to the units in respect of which the declaration is made, ends 3 years after the earliest date on which all of those units stand cancelled, redeemed or bought by the said management company or trustee, and

(ii) on being so required by notice given to it in writing by an inspector, make available to the inspector, within the time specified in the notice,

all declarations of the kind specified in subsection (4) which have been made to it.

(b) The inspector may examine and take copies of, or of extracts from, a declaration made available to him under paragraph (a).

(6) (a) Notwithstanding section 18 of the Finance Act, 1989 , a special investment scheme shall not be a collective investment undertaking for the purposes of that section and the First Schedule to that Act:

Provided that a special investment scheme shall continue to be treated as a collective investment undertaking within the meaning of the said section 18 for the purposes of—

(i) paragraph (i) (gg) of the First Schedule to the Value-Added Tax Act, 1972 , and

(ii) section 206 (a) of the Finance Act, 1992 .

(b) Notwithstanding any other provision of the Tax Acts or the Capital Gains Tax Acts—

(i) income tax shall be chargeable at the standard rate in respect of income arising to a special investment scheme, and such income shall not be charged to an additional duty of income tax under section 13 of the Finance Act, 1976 , and

(ii) capital gains tax shall be chargeable at the rate specified in section 3 (3) of the Capital Gains Tax Act, 1975 , in respect of chargeable gains accruing to a special investment scheme:

Provided that—

(I) any income tax or capital gains tax so chargeable shall be reduced so that the amount of such tax, before it is reduced by any credit, relief or other deduction under the Tax Acts or the Capital Gains Tax Acts apart from this section, is 10 per cent of income arising or chargeable gains accruing, as the case may be, to the scheme, and

(II) only so much of income arising or gains accruing to the scheme shall be chargeable to income tax or capital gains tax, as the case may be, as is, or is to be—

(A) paid to, or

(B) accumulated or invested for the benefit of,

holders of special investment units or as would be so paid, accumulated or invested if any gains accruing to the scheme by virtue of subsection (8) were gains on an actual disposal of the assets concerned.

(7) (a) Notwithstanding subsection (5) of section 88 of the Corporation Tax Act, 1976 , a distribution made by a company resident in the State in respect of shares which are subject to any trust created in pursuance of a special investment scheme shall be treated for the purposes of the Tax Acts as income in respect of which the management company or trustee under the scheme is entitled to a tax credit and no other person shall fall to be treated for the purposes of the said section 88 as receiving that distribution.

(b) Where a management company or trustee under a special investment scheme is entitled to a tax credit in respect of a distribution made by a company resident in the State, the credit, or part of it, shall be set against—

(i) the income tax, as reduced by virtue of the proviso to subsection (6) (b), chargeable in respect of income arising to, or

(ii) the capital gains tax, as so reduced, chargeable in respect of chargeable gains accruing to,

the special investment scheme for the year of assessment in which the distribution is made and, where the credit exceeds the aggregate of that income tax and capital gains tax, the excess shall be paid to the management company or trustee under the scheme.

(c) Notwithstanding any provision of that Chapter, Chapter IV of Part I of the Finance Act, 1986 , shall apply to a deposit, within the meaning of the Chapter, for the time being subject to any trust created in pursuance of a special investment scheme as if such a deposit were not a relevant deposit, within the meaning of the Chapter.

(8) (a) Notwithstanding any provision of the Capital Gains Tax Acts, for the purposes of computing chargeable gains arising to a special investment scheme—

(i) each asset which is on the 5th day of April subject to any trust created in pursuance of the scheme shall be deemed to have been disposed of and immediately reacquired by the management company or trustee under the scheme on that day at the asset's market value on that day;

(ii) section 3 of the Capital Gains Tax (Amendment) Act, 1978 , shall not have effect;

(iii) section 19 of the Capital Gains Tax Act, 1975 , as it applies to assets specified in that section or in any other provision of the Capital Gains Tax Acts, shall not have effect; and

(iv) without prejudice to the treatment of losses on such shares as allowable losses, gains accruing on the disposal or deemed disposal of eligible shares, within the meaning of Chapter III of Part I of the Finance Act, 1984 , in qualifying companies, within the meaning aforesaid, shall not be chargeable gains:

Provided that, as respects paragraph 14 of Schedule 1 to the Capital Gains Tax Act, 1975

(I) subparagraphs (1) and (2), and

(II) subparagraph (3), in so far as a chargeable gain is not thereby disregarded for the purposes of that subparagraph,

shall apply as if subparagraphs (i) and (iii) had not been enacted.

(b) Where in a year of assessment the management company or trustee under a special investment scheme incurs allowable losses on disposals or deemed disposals of assets subject to any trust created in pursuance of the scheme, the amount, if any, by which the aggregate of such allowable losses exceeds the aggregate of chargeable gains on such disposals in the year of assessment, shall be—

(i) disregarded for the purposes of subsection (1) of section 5 of the Capital Gains Tax Act, 1975 ,

(ii) treated as reducing the income chargeable to incometax arising to the scheme in that year of assessment, and

(iii) to the extent that it is not treated as reducing income arising to the scheme in the said year of assessment, treated, for the purposes of the Capital Gains Tax Acts and this paragraph, as an allowable loss incurred in the next subsequent year of assessment on a disposal of an asset subject to a trust created in pursuance of the scheme.

(9) (a) Distributions received by the management company or trustee under a special investment scheme in respect of eligible shares, which are subject to any trust created in pursuance of the scheme, shall not be chargeable to income tax:

Provided that, notwithstanding subsection (7) or section 88 of the Corporation Tax Act, 1976 , the tax credit in respect of a distribution to which this paragraph applies shall be disregarded for all the purposes of the Tax Acts and the Capital Gains Tax Acts.

(b) Notwithstanding section 27 of the Finance Act, 1984 , the Revenue Commissioners shall not designate a special investment scheme for the purposes of Chapter III of Part I of the said Act.

(c) In this subsection “eligible shares” means eligible shares, within the meaning of Chapter III of Part I of the Finance Act, 1984 , in qualifying companies, within the meaning aforesaid.

(10) (a) Any payment made to a holder of special investment units by the management company or trustee under the special investment scheme concerned by reason of rights conferred on the holder as a result of holding such units shall not be reckoned in computing total income for the purposes of the Income Tax Acts.

(b) (i) Section 32 of the Capital Gains Tax Act, 1975 , shall not apply to a special investment scheme or the disposal of special investment units, and

(ii) no chargeable gain shall accrue on the disposal of, or of an interest in, special investment units.

(c) Notwithstanding any provision of the Income Tax Acts or the Capital Gains Tax Acts, the holder of special investment units of a special investment scheme, shall not be entitled to any credit for, or payment of, any income tax or capital gains tax paid in respect of income arising to, or capital gains accruing to, the scheme.