Citation, commencement and effect

1. —(1) This Order may be cited as the Unit Trust Schemes and Offshore Funds (Non-qualifying Investments Test) Order 2006 and shall come into force on 20th April 2006.

(2) This Order has effect in relation to accounting periods beginning on or after 1st April 2006.

Amendments to paragraph 8 of Schedule 10 to the Finance Act 1996

2. In Schedule 10 to the Finance Act 1996(loan relationships: collective investment schemes), paragraph 8( 2 ) (non-qualifying investments test) is amended as follows.

3. In sub-paragraph (2)( 3 ) for paragraphs (e) and (f) substitute—

“ (e) derivative contracts whose underlying subject matter consists wholly of any one or more of the following—

(i) the matters referred to in paragraphs (a) to (d) above, and

(ii) currency;

(f) contracts for differences whose underlying subject matter consists wholly of any one or more of the following—

(i) interest rates,

(ii) creditworthiness, and

(ii) currency;

(g) derivative contracts not within paragraph (e) or (f) where there is a hedging relationship between the derivative contract and an asset within paragraphs (a) to (d) above;

(h) alternative finance arrangements. ” .

4. In sub-paragraph (4)( 4 ) for the words from “paragraphs (a)” to the end substitute “paragraphs (a) to (c) and (e) to (h) of sub-paragraph (2) above”.

5. After sub-paragraph (7F)( 5 ) insert the following sub-paragraphs—

“ (7G) For the purposes of this paragraph, in relation to a unit trust scheme, offshore fund or open-ended investment company, there is a hedging relationship between a derivative contract on the one hand (“the hedging instrument”) and an asset on the other (“the hedged item”) if and to the extent that—

(a) the hedging instrument and the hedged item are designated by the scheme, fund or company as a hedge, or

(b) in any other case the hedging instrument is intended to act as a hedge of the exposure to changes in fair value of a hedged item which is a recognised asset or an identified portion of such an asset that is attributable to a particular risk and could affect the total net return of the scheme, fund or company.

(7H) For the purposes of sub-paragraph (7G)(b) above, the “total net return” of a scheme, fund or company means the total net return of the scheme, fund or company, computed—

(a) in accordance with generally accepted accounting practice, or

(b) in the case of accounts prepared in a jurisdiction outside the United Kingdom, in accordance with generally accepted accounting practice in that jurisdiction.

(7I) In this paragraph “alternative finance arrangements” has the meaning given by section 46(1) of the Finance Act 2005 ( 6 ) . ” .