In a remarkable case which could set a precedent for future fund manager transfers, the Inland Revenue has blessed a plan for investors in Rathbone Special Situations unit trust to switch to New Star's Select Opportunities fund without paying charges or capital gains tax (CGT).
New Star poached Patrick Evershed, the Special Situations fund manager, from Rathbone. Normally investors who wanted to follow Mr Evershed would have to sell their holdings in the Rathbone fund at the bid price, possibly incurring CGT, and pay charges to buy into the New Star fund at the offer price. But the Inland Revenue has agreed to let the transfer count as a scheme of reconstruction and amalgamation, enabling investors to move across at no cost.
An Inland Revenue spokesman said: "The anti-avoidance provisions of section 137 of the Taxation of Capital Gains Act 1992 would not operate to prevent section 136 of that act from applying to the proposed scheme of reconstruction and amalgamation. The scheme was within the scope of section 136, so that there is no immediate charge to capital gains tax on any investors who left Rathbone and joined New Star. Any scheme which complies with these conditions would have the same outcome."
Stuart Cazier, operations managing director at New Star, said: "There have been schemes like this before, but they have always been within one group. What is new is that this involved two management companies. The important points were that the transfer was open to all investors in the Rathbones fund, and the new fund would have the same objectives and be run by the same manager."
The deal is a remarkable example of co-operation between two rival fund management companies. For Rathbone in particular there was nothing directly to be gained from the exercise, as it will simply lose clients to New Star.
Peter Pearson Lund, managing director of Rathbone Unit Trust Management, said: "We are just making it easier for those investors who would have left us anyway because they were closely connected with Patrick. He had a number of followers, so when New Star approached us we were trying to find an elegant way of arranging the transition at nil expense and CGT."
Mark Skinner, managing director of New Star Investment Funds, added: "Ultimately it has to be good for investors."Reuse content