Income Tax Act 2007 section 824

Application of the 20% rule to collective investment schemes

Section 824 explains how the 20% rule (which can allow investment transaction income of non-UK residents to be disregarded for UK tax purposes) is applied when the non-UK resident is a participant in a collective investment scheme.

• The section applies where a non-UK resident receives amounts as a participant in a collective investment scheme, and the 20% rule must be tested at scheme level rather than at the level of individual participants
• For testing purposes, the scheme is treated as if all its transactions were carried out on behalf of a hypothetical non-UK resident company (the "assumed company"), with participants having only shareholder-equivalent rights
• If the assumed company would not be regarded as trading in the UK, the 20% rule is automatically treated as satisfied for transactions carried out for the scheme
• If the assumed company would be regarded as trading in the UK, the normal 20% rule provisions apply but with references adjusted so that the assumed company stands in place of the non-UK resident, and the relevant income is recalculated on a scheme-wide basis