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HMRC internal manual

Company Taxation Manual

Investment trusts: interest distributions: introduction

{#IDAXGK0G}References to these pages

The following pages (CTM47510 to CTM47596) set out the detail of a new optional tax framework for investment trusts (ITs) investing in interest bearing assets.

Under the tax framework, the regulations (SI2009/2034), made under the powers in FA09/S45, allow an IT with income from interest bearing and certain economically similar assets to receive a tax deduction for any interest distributions made, effectively removing any corporation tax liability that would otherwise arise on interest and similar income.

FA09/S45 also introduces the concept of a prospective investment trust (PIT). This is to allow (subject to certain conditions) an investment trust company (ITC) to make an interest distribution part way through an accounting period (AP), before it has obtained approval status to be an IT at the end of the AP from HMRC (see CTM47515 for a definition of a PIT).

The tax framework moves the point of taxation from the investment trust to the investor so that they are treated as if they had received income directly from an investment in the underlying assets.

Where an IT makes an interest distribution, this income will be treated as the receipt of a payment of interest in the hands of the investor.

Use of the framework is optional and relies on the IT gaining approval, under ICTA88/S842 (1) (explained in CTM47110).

The guidance also explains regulations which allow for alternative means of providing tax information to recipients, where an investment trust makes more than one type of distribution - see CTM47570to CTM47590.

When does the new tax framework apply?

The new tax framework applies to any distributions made on or after the 1 September 2009, subject to various conditions set out in CTM47510.