Revenue Note for Guidance

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Revenue Note for Guidance

735 Certain unit trusts not to be collective investment undertakings

Life assurance companies manage and own almost all the units of certain unit trust schemes which are nevertheless legal entities separate from those companies. The life companies use the unit trusts to fix the value of “unit linked” life assurance policies. If a life company’s sales of unit linked policies were to decline to the extent that payments on matured polices exceeded receipts from new policies issued it would have to dispose of units to the manager of the trust. The trustees might then have to sell assets of the trust to fund redemption of the units. Under section 731(6) life companies are exempted for any capital gain tax charge on the disposal of units. Section 735 deems unit trusts used for the purpose of unit linked business not to be collective investment undertakings and accordingly a tax charge arises when such a trust itself disposes of an asset.

Relevant Date: Finance Act 2020