Relaxation of restrictions on a QIS

A Qualified Investor Scheme (QIS) is an investment trust which is regulated by the Financial Services Authority and may only be marketed to a restricted range of sophisticated investors. From 1 January 2009, the additional tax charge on anyone owning 10% or more of a QIS is abolished.

Baker Tilly analysis

Investors in a QIS are either corporate bodies or sophisticated individual investors who can be expected to understand the risks involved in a wide range of investments.

Such investors are usually of high net worth and may be in a position to have an influence over the investment strategy of a fund in which they have a 'significant holding' (defined as 10% or more). For this reason they pay an additional income or corporation tax charge on their investment.

This has effectively limited investors to holding less than 10% of any one fund. From 1 January 2009 that limitation is removed.

Although not of wide application, this is a sensible measure to promote investment.

In detail

The point of a QIS is that it has unusually wide powers of investment, which means that it can make large gains, but also perhaps large losses. For this reason it can only be marketed to a restricted range of investors.

Investors in a QIS are treated much like unit-holders in a unit trust. Instead of being charged to tax on their share of the income and gains of the QIS, they are liable to income or corporation tax on the distributions they receive, and to CGT (or corporation tax on chargeable gains) on any gain on disposal of their units.

At present an investor who owns 10% or more of a particular QIS is subject to tax on any increase in the value of their holding, whether that gain is realised or not. In practice this usually means that there is no CGT charge on disposal of the holding.

From 1 January 2009 all investors in the QIS can participate on an equal footing, including the liability to CGT on the final disposal. In order to obtain this relaxation, however, the QIS must show that investment is not limited to specific individuals or companies. This is referred to as the 'genuine diversity of ownership rule' and is intended to prevent the creation of a 'private' QIS.