Taxes Consolidation Act 1997 section 735

Certain unit trusts not to be collective investment undertakings

Section 735 removes the collective investment undertaking exemption from unit trust schemes that are linked to life assurance policies, so that capital gains tax applies when such a trust disposes of its assets.

• The section applies to unit trust schemes where participation requires a life assurance policy to be taken out, but the units do not become the property of the policyholder.
• A unit trust scheme caught by this section is deemed not to be a collective investment undertaking for the purposes of section 734 and Schedule 18.
• The effect is that the normal exemption from capital gains tax on disposals by collective investment undertakings does not apply to these life assurance linked unit trusts.
• Capital gains tax therefore arises at the level of the unit trust itself when it disposes of its assets, even though the unitholding life company is separately exempt under section 731(6) on any disposal of its units.