Approved investment trust status
3i Group plc has operated in the UK as an approved investment trust company since its listing on the London Stock Exchange in 1994.
An approved investment trust is a UK investment company which is required to meet certain conditions set out in the UK tax rules to obtain and maintain its approved status, which allows certain profits of the company, broadly its capital profits, to be exempt from tax in the UK. The conditions required to be met by the company include, among others:
(i) a requirement for the company to undertake portfolio investment activity that aims to spread investment risk; and
(ii) for the company’s shares to be listed on an approved exchange.
A large part of 3i Group plc’s profits are in the form of investment returns (mainly capital profits) which are not taxable in the UK as a result of 3i Group plc operating as an approved investment trust company.
Approved investment trust companies are particularly suited for use as investment vehicles, as their tax status allows them to ensure that investors do not suffer double taxation of their investment returns, once at the level of the investment vehicle and then again in the hands of the investors. In other words, investors do not pay more taxes than they would have incurred if they had been able to invest directly in the underlying portfolio of investments.
The approved investment trust tax rules have been in the UK tax code since the 1970s, in recognition of the fact that investment companies perform an important economic function, to the extent that they:
(i) allow individual and institutional investors access to a professionally managed, diversified portfolio, encouraging investments and savings; and
(ii) provide funding for the businesses in which they invest, facilitating economic growth.