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HMRC internal manual

Company Taxation Manual

HM Revenue & Customs
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Authorised investment funds (AIFs): taxation of funds: interest distributions

SI2006/964 Regulation 18 - treatment of interest distributions

For distribution periods ending on or after 1 April 1996 the authorised investment fund may show the whole of its income available for distribution to unit holders as yearly interest (an interest distribution) only if it satisfies the qualifying investments test (CTM48270) throughout the distribution period. Where the qualifying investments test is not satisfied the whole of the income available for distribution to unit holders has to be shown as available for distribution as dividends.

In the hands of investors the distribution is treated in the same way as interest received by them. For IT payers see CTM48560 and for CT payers see CTM48520.

Note that not all qualifying investments yield interest. They may, for example, be alternative finance arrangements within the meaning of FA05/S46 (CTM48270).

Deduction of IT at source

This type of distribution is treated as a payment of yearly interest and IT at the lower rate is deducted by the fund in accordance with ICTA88/S349 (2) when payment is made to the unit holder unless the payment falls within the gross payment category. The fund will account for the IT on forms CT61 in the usual way.

Payments without deduction of tax

Some investors are entitled to receive payments of interest distributions without deduction of tax (gross payments) - see CTM48600onwards.