Revenue Note for Guidance

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Revenue Note for Guidance

732 Special arrangements for qualifying unit trusts

Summary

This section enables the Revenue Commissioners to enter into arrangements with certain unit trusts (“qualifying unit trusts”) having substantial public participation to ensure that there will not be any disadvantage to an individual small investor through purchasing units instead of investing directly in quoted securities.

The unit trusts to which the section applies are those registered under the Unit Trusts Act, 1972, which satisfy certain conditions.

In relation to such trusts one half of the normal capital gains tax rate applies to —

  • disposals of investments of the unit trust itself, and
  • capital gains realised by unit holders on the disposal of units in those unit trusts.

Details

Definitions

(1) “securities” and “quoted securities” are defined for the purposes of reference to them in subsection (6).

Application

(2)(a) The section applies to a unit trust (called a “qualifying unit trust”) which complies with certain conditions. These conditions are —

  • the trust must be a registered unit trust within the meaning of section 3 of the Unit Trusts Act, 1972,
  • the trustees must be resident and ordinarily resident in the State,
  • the price of units must be published regularly by the managers,
  • all units must be equal in value and have the same rights, and
  • the trust must, since it was registered, have satisfied the conditions set out in subsection (6), subject to the relieving provisions of subsection (7).

(2)(b) The section applies to disposals of units (called “qualifying units”) in a unit trust which is a “qualifying unit trust”.

(6) The additional conditions which a unit trust must fulfil in order to be a qualifying unit trust are —

  • the general public must hold at least 80 per cent of the units,
  • the number of unit holders must not fall below 50 and each holding must be relatively small (not more than 5 per cent of all issued units – units of connected persons are to be taken as one holding for this purpose),
  • at least 80 per cent by value of the investments of the unit trust must be quoted securities, and
  • the proportion of the trust’s funds invested in any one company must not exceed 15 per cent by value of the entire securities held.

(7) A 2 year period from the date of registration can be allowed to a unit trust to enable it to comply with these conditions.

Tax treatment

(3) Chargeable gains accruing to a qualifying unit trust in any year of assessment are chargeable to capital gains tax at one-half of the normal capital gains tax rate.

(4) The effective capital gains tax rate applicable to the disposal of qualifying units is one-half of the normal capital gains tax rate.

(5) The effective corporation tax rate applicable to disposals of qualifying units by a company is also equal to one-half of the normal capital gains tax rate.

Relevant Date: Finance Act 2021