Use of derivatives in retail funds scrutinised by HMRC

tax

loss of fund status would mean capital gains in fund would be taxed as income at 20%

HM Revenue & Customs (HMRC) is analysing derivative use in retail absolute return funds, which could force wind-ups or double tax charges for investors. HMRC is understood to have approached two retail Ucits funds, questioning whether use of derivatives in these portfolios is for investment or trading purposes. There is no definition of what constitutes a trade, as it is based on case law rather than rules. Loosely, the principle is that a fund must invest for the medium term and not trade holdings like a day trader for example. Derivatives have many uses in funds and complex structures...