The Collective Investment Schemes (Tax Transparent Funds, Exchanges, Merges and Schemes of Reconstuction) Regulations 2013 still needs clarification regarding equalisation.
So in summary, Section 103F will when enacted (expected soon) apply to switches/conversions of share class within the same fund (not from one fund to another). So a switch/conversion from a share class with a high AMC to a 'clean' share class in the same fund (with a low AMC and no commission or 'rebates' paid) would qualify.
But s103 F will not apply to switches from one fund to a different fund (or to a different sub-fund).
The following is an extract from the Governments response to the consultation which summaries the approach:
Exchanges, mergers and reconstructions
B.1 Changes have been introduced in order to clarify the capital gains tax position for investors in collective investment schemes under the TCGA 1992. In particular changes have been introduced to ensure that no gain will arise on an exchange of shares where the property subject to the scheme and the rights of participants to share in the capital and income in relation to that property remain the same both before and after the event.
B.2 These changes do not cover the partnership fund where the tax treatment of investors remains as it is at present for investors in limited partnerships.
Switches of shares
B.3 As part of the responses received we were asked to consider whether the new rules would cover ‘switches‘ of shares. This is where an investor’s existing shares are cancelled and new shares issued in their place, as opposed to the more straightforward conversion of shares from one class to another.
B.4 Provided that the issue of the new units is to the same investor and is tied to the cancellation of the old units and made in exchange for those units, so that the transaction the investor undertakes is a single one, then this will be within the wording of this regulation.
B.5 It was also identified in the responses that this method of switching share classes could cause equalisation to arise to the investor on the issue of new units. Given that the purpose of this regulation is to treat the investor as having made neither a disposal nor an acquisition then it is not appropriate that equalisation should arise for tax purposes in such a case.
B.6 The Government has therefore provided that (where section s103F applies) then any part of the next distribution, or amount of reported income, that is paid out or reported as an equalisation amount in respect of the new holding of units (or converted units) shall be treated for the purposes of the participant’s tax, not as a repayment of capital, but as a distribution of income.
B.7 This means that it will be necessary to inform investors who had undertaken such a ‘switch’ or conversion that any equalisation that may be shown on their vouchers should be added to the distribution or reported income for tax purposes. It should not be treated as repayment of capital. HMRC will issue guidance as to how this can be dealt with in practice
The legislation and guidance can be found on the HM Treasury website.