Authorised investment funds: taxation of participants within the charge to IT: interest distributions
IT will normally be deducted at source by the fund at the basic rate (CTM48260) and in such cases the participant (unit holder) is treated as receiving yearly interest with IT deducted at the basic rate.
Higher rate taxpayers will have a further liability.
Participants with no liability to IT will be able to reclaim the tax deducted. However, in some cases, individuals may have established entitlement to payment without deduction of tax and so will be treated as receiving a gross amount of yearly interest. Such cases will normally be non-residents or when the individual participant has no liability to UK income tax. Details of entitlement to payments without deduction of tax can be found at CTM48600 onwards.
The fund (the open-ended investment company or the trustees of the authorised unit trust) is responsible for deducting tax at the lower rate and for paying the tax deducted to HMRC.
The fund is responsible for making gross payments where the participant has met the requirements and is subject to requirements to notify HMRC of gross payments made and to audit by HMRC (CTM48600 onwards).