IR32                              29 November 1994

        INVESTMENT COMPANIES: CHANGES OF OWNERSHIP

The  Chancellor  proposes in his Budget  to  withdraw  tax
relief for management expenses and charges carried forward
where the ownership of an investment company changes and:

  there is a major change in the nature or conduct of  its
  business,  or its business revives, having become  small
  or   negligible  before  the  change,  or  there  is   a
  significant increase in the company's capital; or

  an  asset  is acquired from a company in the  purchasing
  group  after  the  change in ownership and  disposed  of
  shortly afterwards.

The  new  rules apply to changes in ownership on or  after
today,  except  where the change occurs under  a  contract
entered into before today.

The  Chancellor's  intention is  to  reduce  the  loss  of
corporation tax which can occur when an investment company
with  unused tax reliefs changes hands.  The proposal will
yield  about Pounds 30 million in 1996-97 and subsequent  years,
and  it will prevent further loss of tax from any increase
in this activity.

                         DETAILS

1.    In some cases, investment companies with unused  tax reliefs
carried forward (management expenses and charges) have  been bought,
and new investments have been put  into them,  in order to use the
tax reliefs against income  and capital gains generated by those
investments.  Income  and gains made under one ownership are thereby
sheltered  from corporation  tax by excess tax reliefs generated
under  a different ownership, despite the fact that the company may
be carrying on a different business and/or operating  on  a
different  scale  after  the  change  of ownership.

2.    In  other  cases,  a purchasing group  of  companies
passes   an  asset  into  the  newly  acquired  investment
company,  then  sells  it, setting the  unused  management
expenses against the chargeable gain.  In this way, a gain
about  to  be  realised  by the group  is  sheltered  from
corporation tax.

3.    The Chancellor's proposals are intended to limit the
circumstances  in  which unused tax reliefs  can  be  used
following  a  change of ownership.  They  mirror  existing
provisions which apply to trading losses, capital  losses,
and  surplus advance corporation tax when ownership  of  a
company  changes.  They use the same definition of 'change
of  ownership', and apply similar tests in determining the
availability  of  certain reliefs during  a  period  which
contains a change of ownership.

4.    One  provision operates to deny any  use  of  excess
management   expenses  and  charges  (such   as   interest
payments)  at  the  date of the change  of  ownership  for
periods  after  that change.  It takes effect  in  any  of
three different circumstances:

   where, during a three year period, a company has both a
   change of ownership and a major change in the nature or
   conduct of its business;

   where  a business has become small or negligible before
   a  change  in  ownership, and is significantly  revived
   following the change;

   where there is a significant increase in the capital of
   the  company  in  the  year before the change,  or  the
   three years after the change.

5.    A  second provision applies where an asset has  been
acquired via a no gain/no loss transfer from another group
member  after the company's change in ownership,  and  has
been  disposed of within three years of that  change.   It
prevents   the  company  from  setting  excess  management
expenses  and charges from before the change in  ownership
against chargeable gains on the asset concerned.

6.   Management expenses and charges are allowed when they
are paid or disbursed, unlike trading expenditure which is
allowed  as  it  accrues.  The proposal  also  applies  to
accrued  management expenses and charges so it will  apply
where management expenses or charges have been accruing in
the  company to be sold and are only paid after the change
of ownership.

7.    These  proposals will not apply  to  life  insurance
companies.


                    NOTES FOR EDITORS

1.    Investment companies are defined in section  130  of
the  Income and Corporation Taxes Act 1988.  They  include
property  holding companies, holding companies of  groups,
and  other companies whose main business is the making  of
investments.   Such companies are entitled  to  set  their
expenses of management against their profits.  Any  excess
of  management expenses over the company's profit  can  be
carried forward indefinitely and set against the company's
income  and capital gains in later years.  Similarly,  any
excess of charges incurred wholly and exclusively for  the
purpose of the business over the company's profits can  be
carried  forward.  If the company is part of  a  group  of
companies,  assets can be transferred into it via  the  no
gain/no loss capital gain group provisions.


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