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HMRC internal manual

Company Taxation Manual

Authorised investment funds (AIFs): taxation of funds: basic rules

Tax treatment applying to an authorised investment fund (AIF)

Sections 468 and 468A ICTA 1988

These sections, dealing with authorised unit trusts (AUTs) and open-ended investment companies (OEICs) respectively, set out the basic tax charges applying to an AIF.

ICTA88/S468 treats an AUT for purposes of tax on its income as if the trustees were a company resident in the UK and ICTA88/S130 determines that it will be an investment company. Section 130 also applies to the business of an OEIC to determine that it is an investment company.

It follows that an AIF, whether it is a OEIC or an AUT, is, for tax purposes, an investment company within the charge to CT.

Special rate of CT

An AIF is chargeable to CT by reference to the financial year beginning on 1 April at a rate equal to the lower rate of IT for the IT year of assessment (tax year) beginning on 6 April in that financial year (ICTA88/S468 (1A) and ICTA88/S468A (1)). Where an accounting period straddles 1 April the profits are apportioned to the financial years concerned (ICTA88/S8 (3) and ICTA88/S834 (4)).

It follows that the normal CT rates do not apply to AIFs.

The Authorised Investment Funds (Tax) Regulations 2006 (SI2006/964)

Except as varied within these regulations the Tax Acts apply to an AIF as to any other corporate body. (For an AUT see ICTA88/S468 (1). An OEIC is a corporate body under the provisions of section 262 of the Financial Services and Markets Act 2000.)

The regulations cover the detail of the charging regime specific to AIFs and their investors. The regulations are made under powers in F2A05/S17 (3) and have effect for accounting periods commencing on or after 1 April 2006.

Accounting periods commencing before 1 April 2006

Except as noted in these pages the effect of the previous legislation is the same as that of the regulations. In case of doubt advice may be sought from CTIS (Collective Investment Schemes).