Budget 2010: Treasury reveals investment trust tax consultation

The Government has announced a consultation into the tax regime for investment trusts which will include rules on direct property investment.

Starting in the summer, the consultation will look to update the regulations known as Section 842.

The rules define from where trusts can receive the majority of their income, which at the moment excludes direct investment in property or interest baring securities.

They also insist every trust undergo an annual assessment by HMRC.

AIC director general Ian Sayers says he welcomes the review.

"We have been pushing for this for a while. The rules, which have been around since 1965, have done quite well, but need to be updated," he says.

"Why should investment trusts lose their status if they invest in direct property?

"We would also like the annual review to be conducted on a self-assessment basis."

Sayers also believes more clarity is needed around the use of derivatives.

"At the moment, there is some uncertainty around whether use of certain derivatives is considered investing or trading," he says.

"We want to have a safe harbour, whereby there is a list of instruments which investment trusts will be certain are not considered trading by the tax authorities.

"The AIC is clear these changes will be cost neutral to the Treasury and my even bring extra revenue through stamp duty if more trusts decide to list in the UK."