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Understanding Investment Trust Regulations

There are a number of government bodies that lay down Investment trust regulations.

As might be imagined, the Financial Services Authority (FSA) has rules which mostly fall under the remit of the Financial Services and Markets Act (2000).

However, the FSA also has principles to be followed for prospective investment trusts. These could almost be described as investment trust listing requirements. They include:

The trust must have a board which is independent of management

The trust should not be a dealer in investments

The investment management must comply with rules as to their experience and competence

There should be an adequate spread of risk

The Inland Revenue (HMRC) can grant section 842 approval for a new trust. The FSA insists that this should happen, but in truth, it is in the best interests of both management and shareholders that it is done. Section 842 of the Income and Corporation Taxes Act 1988 enables a trust to sell investments - such as shares - and not be liable for taxation on any capital gain that may have been made.

There are a number of rules to be complied with for s.842 approval - for example:

It cannot invest more than 15% of total assets in just one company

The company must be resident in the UK and cannot be controlled by 5 or less people

The ordinary shares must be quoted on the London Stock Exchange

There are a few investment management companies which are managed outside the UK but are registered inside that can qualify as an Investment trust. These companies will also be listed on the London Stock Exchange and have s.842 approval. It is wise for private investors to check the individual tax situation of such organisations.

As a plc (Public Limited Company) such an investment vehicle is formed and controlled by the Companies Acts. These ensure that at formation there are Memorandum and Articles of Association which must be followed by company management.

For more information relating to Investment trusts, please visit:

What Is An Investment Trust?

What Are The Investment Trust Sectors?

Learn Some Basic Investment Trust Information

How Does Investment Trust Net Asset Value Work?

How Do Investment Trust Share Buybacks Work?

What Is An Investment Trust Savings Scheme?

How Much Are Investment Trust Annual Charges?

What Are The Different Investment Trust Share Classes?

What Is A Split Capital Investment Trust?