FSA consults on “tax transparent” fund types

The Financial Services Authority (FSA) is consulting investment advisers to enable it to authorise two further legal forms of collective investment scheme.

The regulator wishes to introduce the co-ownership schemes and limited partnership schemes under the collective investment schemes banner, which have been billed as “tax transparent”.

In its latest quarterly publication, the City regulator says it is proposing to make ammendments to the Collective Investment Schemes sourcebook and FSA handbook to enable it to authorise the fund types, known collectively as “authorised contractual schemes”.

According to the FSA, authorised contractual schemes will be tax transparent “meaning that for direct tax purposes, investors are treated as if they had invested directly in the underlying assets and are subject to tax accordingly”.

It adds that the scheme authorised contractual schemes “will not be subject to corporation, income or capital gains tax” unlike unit trusts or Oeics. (article continues below)

The regulator says the schemes are “expected to be attractive to large investors (eg. Ucits feeders or investment funds) and the number of direct retail investors is expected to be low”.

Co-ownership schemes will be will be constituted by operator and depositary entering into a deed, with the operator responsible for managing the scheme and assets. Both operator and depositary must be authorised persons.

Limited partnership will be operated by a general partner while the depositary must be a limited partern, both must be authorised.

The FSA says HM Treasury is currently consulting on necessary changes to the Financial Services and Market Act and other legislation.

The FSA’s proposed changes are part of a joint consultation with the Financial Ombudsman Service.