The ISA Bulletin keeps ISA
managers informed of any new developments relating to the ISA
scheme. Please ensure the appropriate people in your
organisation read it.
We suggest that you keep Bulletins at the front of your copy of
the Guidance Notes for ISA Managers. |
This Bulletin contains articles on
- ISA qualifying investments
- EEA passport rights and approval to offer ISA
|
Enquiries on this bulletin
should be addressed to
e-mail: savings.audit@hmrc.gsi.gov.uk |
ISA qualifying investments
ISA Bulletin 54 explained that company shares traded on any market
of a recognised stock exchange in the EEA can be included within a
stocks and shares ISA from 5 August 2013.
This Bulletin addresses a number of enquiries.
Which markets qualify
Shares must be company shares admitted to trading on a recognised
stock exchange (RSE) within the EEA.
The table available via the link below shows the current list of
RSEs. Since 5 August, company shares traded on those markets on which
securities do not meet the HMRC definition of 'listed' will
now qualify for investment in an ISA, provided the relevant RSE is
within the EEA: www.hmrc.gov.uk/fid/table1-rse.pdf
The change does not affect the ISA eligibility of company shares
'listed' on a RSE.
Interaction with other reliefs
Company shares which became newly eligible for ISA inclusion as a
result of this change will remain eligible for the Enterprise
Investment Scheme (EIS), the Venture Capital Trust (VCT) scheme, and
Inheritance Tax Business Property Relief (BPR).
However, if an investor already holds company shares which are
traded on a newly qualifying market these cannot simply be moved into
an ISA.
If an investor sells an investment that currently qualifies for
EIS, VCT or BPR, and their ISA manager uses the proceeds to purchase
a replacement holding of the same shares for investment in an ISA,
the effect would be that:
- for EIS, the sale of the original holding will be a disposal
for the purpose of the provisions for withdrawal of EIS Income Tax
reliefs. The new holding will qualify for EIS relief only if it is
new shares in a qualifying company
- for VCT, the sale of the original holding will be a disposal
for the purpose of the provisions for the recovery of VCT tax
reliefs. The new holding will qualify only for dividend relief and
Capital Gains Tax exemptions under the VCT rules
- for BPR, there would be two ownership periods, one for the
original holding and one for the 'new' holding in the ISA
wrapper. Provided the combined ownership period was more than two
years, BPR would be available on the replacement holding.
The use of depository interests on London Stock Exchange
markets
UK regulation requires securities to be electronically settled (in
CREST). For companies registered outside the UK, this is achieved
through a depositary interest (DI) mechanism. The DI is effectively
an electronic 'wrapper' around the ordinary share, to
facilitate securities to be held electronically rather than in paper
form. A company applies for DIs representing ordinary shares to be
admitted to CREST with effect from its admission to the market.
So when checking the status of international shares on the London
Stock Exchange's markets for ISA qualification purposes, whether
officially listed or otherwise admitted to trading, the descriptor
will state the listed/trading instrument e.g. ordinary shares.
Reference to 'DI' in the descriptor simply confirms that the
shares are settled electronically through CREST using the depository
interest mechanism, and will not have any bearing on eligibility for
investment in an ISA.
EEA passport rights and approval to offer ISA
Special ISA rules apply where a firm does not intend to carry out
all of its functions as an ISA manager from a UK branch or business
establishment.
The Government proposes to amend the ISA Regulations shortly to
allow:
- non-UK based undertakings pursuing the activity of direct
insurance; and
- non-UK based UCITS management companies
to qualify for HMRC approval as an ISA manager. Any such approval
will depend upon the undertaking being an EEA firm for the purposes
of paragraph 5(d) or 5(f) of Schedule 3 (EEA Passport Rights) to the
Financial Services and Markets Act (FISMA).
The Government intends that these changes will have effect so
that, subject to making a successful application to become an ISA
manager when the regulations are amended, non-UK based UCITS
management companies and insurance providers with the appropriate
passporting rights will be able to have their approval as an ISA
manager backdated.
Non-UK based UCITS management companies and insurance providers
proposing to commence ISA business from the date of this Bulletin,
but before the changes to the ISA regulations are made, should
contact HMRC in advance.