731 Chargeable gains accruing to unit trusts

Summary

This section provides for the charge and assessment of unit trusts with regard to capital gains tax. Chargeable gains accruing to a unit trust are to be assessed and charged on the trustees. The section also set out rules for establishing the residence of the trustees. Distributions of capital by the unit trust to unit holders are treated as part disposals of the units in the same way as capital distribution by a company in respect of shares in the company are regarded as part disposals of the shares. Provision is made for certain exemptions in respect of the disposal of units and in respect of gains accruing to a unit trust itself.

Details

(1) “capital distribution” from a unit trust is any distribution in money or money’s worth from the trust including a distribution in the course of terminating the trust, other than a distribution, which in the hands of the recipient, constitutes income for the purposes of income tax.

(2) Gains accruing to a unit trust are assessed and charged on the trustees and the trustees are not regarded as merely acting as nominees of the unit holders.

(3) The trustees are treated as a continuing body of persons distinct from the individuals who may from time to time be acting as trustees. A body of persons is chargeable as a separate entity distinct from the individuals making up that body of persons. The trustees, as a body, are regarded as resident in the State unless the general administration of the unit trust is ordinarily carried on abroad and a majority of the trustees are not resident or not ordinarily resident in the State.

(4) A distribution of capital by the unit trust to unit holders is treated as a part disposal of units by the unit holders.

(5) Where all the units in a unit trust, which is not an authorised unit trust scheme within the meaning of the Unit Trusts Act 1990, are held by capital gains tax exempt persons throughout a year of assessment the gains accruing in that year to the unit trust are not chargeable. Neither are such unit trusts liable to income tax or deposit interest retention tax in that year. This does not apply where exemption of the unit holder is by reason of residence or by virtue of the exemption afforded to individuals by section 739(3). An annual declaration and reporting arrangement for such unit trusts applies for the year of assessment 2010 and subsequent years.

(6) Capital gains are not treated as chargeable gains where they arise from the disposal of units in a unit trust which is administrated by a licensed life assurance company and which requires a policy of life assurance to be affected for participation in the trust. The exemption is subject to the conditions that the trustees of the unit trust have at all times been resident and ordinarily resident in the State and the units do not at any time become the property of the owner of the policy. The exempt disposals would arise if units had to be cancelled because of, for example, contraction in the unit linked business.

(7)(a) From the 6th of April 1994, the exemption of tax on gains arising on a disposal of units in unit trusts which invest only in exempt assets was abolished. This mainly impacted on unauthorised unit trusts. The exemption is preserved in respect of the part of the gain accruing up to the 5th of April 1994. This necessitates computing the gain on disposal of units on the basis that their cost equals their value as at 5 April 1994.

(7)(b) However, the 5 April 1994 valuation is not used where using it in place of the actual consideration on a disposal results in —

• an increased gain,
• an increased loss,
• a gain instead of a loss,
• a loss instead of a gain.

In the latter two scenarios the disposal is assumed to give rise to neither a gain nor a loss.

Relevant Date: Finance Act 2021