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HMRC internal manual

Company Taxation Manual

Authorised investment funds (AIFs): gross payment of interest distributions: reputable intermediary condition - reasonable belief

Funds must have ‘reasonable grounds for believing’ that a unit holder would qualify for payment without deduction of tax as a result of being not ordinarily resident in the UK. There is no definition of reasonable belief but some general principles emerge.

The emphasis is on ‘know your customer’. Where, therefore, the fund is satisfied that intermediaries to whom it makes payments of interest distributions on behalf of unit holders:

  • have carried out appropriate tests,
  • hold accurate and assessable information about the persons for whom they are receiving interest distributions, and
  • as a result the intermediaries believe that those persons are not ordinarily resident in the UK,

the fund might reasonably believe that payments could be made without deduction. Some examples of circumstances where funds may expect to rely on ‘reasonable belief’ may be found at CTM48625.

A similar reasonable belief test is used elsewhere in relation to the ability to make payments of yearly interest without deduction of tax. Guidance on how that particular test might be satisfied was provided in TB54. A similar approach will be taken in respect of interest distributions.

The fund will also need to be satisfied that the intermediary has appropriate procedures in place to identify any change of residence of unit holders and to act upon such information by removing the entitlement to gross interest, and that any information provided was accurate and reliable.