Corporation Tax Act 2010 section 357LE

Investment managers: the 20% rule

Section 357LE sets out the two conditions — Condition A and Condition B — that must both be satisfied for an investment manager to meet the requirements of the 20% rule in relation to a company's relevant disregarded income.

• The 20% rule is met only when both Condition A and Condition B are satisfied.
• Condition A requires that the investment manager (and connected persons) intend that at least 80% of the company's relevant disregarded income consists of amounts to which none of them is beneficially entitled.
• Condition B applies where there is a shortfall against that intention: the failure must be caused by matters genuinely outside the control of the investment manager and connected persons.
• Even where outside factors cause a shortfall, Condition B is not met if the investment manager or connected persons failed to take reasonable steps to mitigate the effect of those factors.