Income Tax Act 2007 section 835Q

Application of 20% rule to collective investment schemes

Section 835Q explains how the 20% rule (which limits the share of transaction income that a non-UK resident's investment manager can retain) is applied when the non-UK resident participates in a collective investment scheme, by treating the scheme as if it were a notional non-UK resident company.

• Where a non-UK resident receives amounts as a participant in a collective investment scheme, the 20% rule is tested at the level of the scheme itself rather than at the level of each individual participant
• The scheme is treated as though all its transactions were carried out on behalf of a hypothetical non-UK resident company (the "assumed company"), and participants' rights are limited to those they would have as shareholders of that company
• If the assumed company would not be regarded as carrying on a trade in the UK for the relevant tax year, 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 in sections 835N to 835P apply with modifications — references to the non-UK resident are replaced with references to the assumed company, and the relevant income measure is recalculated as the sum of amounts that would be taxable on the assumed company