What are the three routes to a disposal under section 809FZD of the Income Tax Act 2007?

Section 809FZD establishes three routes: an actual disposal of the investment through the scheme, a disposal of an intermediate holding or intermediate holding structure through which the investment is held, and a deemed disposal where the scheme has deliberately closed out its position or ceased to bear genuine economic exposure to the investment's risks and rewards.

What is a deemed disposal under section 809FZD?

A deemed disposal arises where a fund has not formally sold an investment but has, through deliberate arrangements, closed out its position or removed itself from genuine economic exposure to the investment's risks and rewards. It must be reasonable to suppose the arrangements were deliberately designed to achieve that result, considering all the circumstances as directed by section 809FZQ.

How does section 809FZD identify which securities are disposed of when only part of a holding is sold?

When a fund holds multiple securities of the same class in a particular company and sells only some of them, section 809FZD requires a first in, first out (FIFO) approach. The securities acquired earliest are treated as being disposed of first, ensuring a clear and consistent identification of which specific investments have been sold.

How does section 809FZD interact with the Taxation of Chargeable Gains Act 1992?

The meaning of disposal follows the Taxation of Chargeable Gains Act 1992. However, section 116 of TCGA 1992 is disregarded, so the share reorganisation provisions in sections 127 to 130 of that Act can apply to qualifying corporate bonds. This ensures those reorganisation rules operate for the purposes of this section without being disapplied.

Income Tax Act 2007 section 809FZD

Disposals

Section 809FZD defines the circumstances in which an investment (or part of an investment) held through an investment scheme is treated as having been disposed of, including actual disposals, disposals of intermediate holdings, and deemed disposals.

An investment is disposed of when it is sold directly through the investment scheme, or when an intermediate holding or structure through which the investment is held is sold on behalf of the scheme.
A "deemed disposal" arises where the scheme, through deliberate arrangements, either closes out its position on an investment or ceases to bear any genuine economic exposure to its risks and rewards.
Where part of a holding of same-class securities in a company is sold, a "first in, first out" (FIFO) basis is used to identify which investments have been disposed of.
The meaning of "disposal" follows the Taxation of Chargeable Gains Act 1992, but section 116 of TCGA 1992 is disregarded, so that the share reorganisation rules in sections 127 to 130 of that Act can apply to qualifying corporate bonds.

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