From 6 April 2006 at the latest, the ISA and child trust fund investment rules will be extended to permit investment in all retail collective investment schemes authorised by the FSA, provided the schemes do not restrict investors’ access to their funds. For ISAs, any collective investment scheme that promises ‘cash-like’ returns will be limited to the cash component. One of the main effects of the change will be to allow ISAs to hold collective funds that invest in property.

Reform of taxation of collective investment schemes
Investors in authorised unit trusts and open-ended investment companies (OEICs) and providers of these funds will be affected by changes in the rules relating to their taxation from dates to be announced. Powers to change the regulations will be included in the Finance Act 2005.

• Distributions Unit trusts and OEICs can invest in a mix of assets including equities and bonds, but the ‘bond fund’ rules prevent them from making distributions fully reflecting that mix. The ‘60% test’ will therefore be removed and funds will be able to make interest and dividend distributions in the same period in proportion to the interest and other income received. Funds will be able to elect to distribute income only as dividends.
• Substantial ownership rule To counter tax avoidance the Finance Act will include a power to make regulations to tax unitholders and shareholders in qualifying investor schemes (QIS) differently if they own a substantial portion of a QIS. Where an investor owns a substantial portion of a QIS, any annual increase in the value of their units and shares will be chargeable as income under self-assessment. Certain kinds of investor such as pension funds, charities and life insurance companies will be excluded from this rule.

Real estate investment trusts
The government has published ‘UK real estate investment trusts: a discussion paper’.

Shari’a compliant finance arrangements
Shari’a compliant investment or borrowing arrangements by individuals and companies that do not involve the receipt or payment of interest will generally be taxed no more or less favourably than equivalent banking arrangements that do give rise to interest. The measure takes effect for transactions entered into from 6 April 2005.

Modernising trust taxation
A new tax regime for certain trusts with vulnerable beneficiaries will retrospectively have effect from 6 April 2004. Trustees will be taxed at the beneficiary’s tax rate(s). For trusts subject to the rate applicable to trusts (RAT – currently 40%), a £500 standard rate band will apply from 6 April 2005. Further amendments to trust taxation, including revised definitions and streaming of income, will be made in next year’s Finance Bill.

Gift aid
From 6 April 2006, any charity that grants the public the right to view property that it preserves or maintains may accept a donation that qualifies for gift aid instead of an admission charge. The donation must either allow unrestricted visits for at least one year or, for shorter periods, it should be at least 10% more than the corresponding admission charges.

Tax and same sex civil partners
Civil partnerships formed under the Civil Partnership Act 2004 will be treated in the same way as married couples for all tax purposes, including inheritance tax and capital gains tax. The changes will take effect from 5 December 2005, when the Act comes into force.