Revenue Note for Guidance
This section makes provision for special investment schemes that are essentially unit trusts which invest a significant proportion of their funds in Irish equities. This requirement ceased on 31 December 2000. The annual income and gains (both realised and unrealised) arising for the benefit of unit holders are liable to a 20 per cent tax charge. No further tax charge arises on the disposal of units by a unit holder. Units in such schemes cannot be issued after 31 December 2000.
(1)(a) “inspector”, “ordinary shares”, and “qualifying shares” have the meanings set out in section 723.
“special investment scheme” is defined in terms of an authorised unit trust scheme in respect of which the conditions set out in subsection (2) are met.
“special investment units” are units of the special investment scheme issued to an individual on or after 1 February, 1993 and before 1 January, 2001 by the management company or trustee under an authorised unit trust scheme. The funds of a special investment scheme must be wholly derived from units which fulfil the conditions set out in subsection (3) and in respect of which the unit holders make a declaration of the kind provided for in subsection (4).
“units” although this definition allows for the possibility that participation in a scheme might be evidenced by shares which are not called units, strictly units issued by a special investment scheme should be known as “special investment units” by virtue of subsection (3)(a)
(2) The features of a special investment scheme which distinguish it from any other authorised unit trust are —
(3)(a) The conditions necessary for special investment units are —
(3)(b) References in these conditions to ownership of special investment units are references to the beneficial ownership of such units.
(3)(c) For the purposes of identifying which units are disposed of, where units are acquired at different times, a “last in, first out” rule is applied.
(4) The declaration required to be made by the purchaser of special investment units must —
(5) The management company must retain the declarations for a certain period and if required make them available for inspection by the inspector.
(6) Special investment schemes are not collective investment undertakings for the purposes of section 734. Special Investment Schemes are subject to a special taxation regime which ensures that an effective 20 per cent rate of tax applies to the income and gains accruing to the benefit of the unit holders. Special Investment Schemes are not to be charged to the 20 per cent surcharge under section 805 in respect of retained distributable income of discretionary trusts. To ensure that the effective rate of charge is, in fact, no more than 20 per cent, all credits, reliefs and deductions due to the special investment scheme are allowed after the reduction in the charge to tax which ensures an effective 20 per cent rate of charge. The expenses of the special investment scheme that reduce the income or gain of the scheme available for distribution or investment on behalf of unit holders are to be allowed in charging such income or gains to tax.
(7)(c) DIRT is not applied to any interest accruing to a special investment scheme.
(8)(a) Certain adjustments apply to the normal capital gains tax rules so as to broaden the base of the charge in the case of special investment schemes as follows —
(8)(b), (bb) Net capital losses of a year of assessment can be set off against income of that year. An excess of such losses can be carried forward to the next year and treated as having accrued in that year. Where the business of a special investment scheme ceases, the unused capital losses of the final year can be carried back and set off in sequence against capital gains of the 3 preceding years.
(9) Dividends received by a special investment scheme in respect of BES shares are not taken into account as income. A special investment scheme cannot be a designated fund for BES purposes.
(10) As regards the unit holder —
Relevant Date: Finance Act 2021