HMRC internal manual

Company Taxation Manual

CTM48836 - AIFs: Property authorised investment funds (Property AIFs): tax treatment of Property AIFs and distributions: tax charge where there are excess financing costs in a qualified investor scheme

The charge to tax (regulation 69Z9 SI 2006/964)

Where the result of the calculation set out in the previous page (CTM48835) is less than 1.25, a charge to tax willarise. The amount of the charge is determined as follows:

  1. work out what the financing costs, taking into account the actual income, would have given a result of 1.25 – this gives the ‘theoretical financing costs’,

  2. work out the amount the actual financing costs exceed the theoretical financing costs to give ‘the excess financing cost’,

  3. divide the main rate of corporation tax charged for the accounting period in question by the rate that applies to open-ended investment companies for that same period – the result of this is called the ‘multiplier’, and

  4. multiply the excess financing costs by the multiplier.

The result is the amount charged to tax. This amount is treated as income chargeable totax under Schedule D Case VI. The income is treated as arising to the residual part of thebusiness (and not to the tax-exempt part), in the same accounting period as the limit wasbreached and must be included in the CT self assessment for that period.

No loss, deficit, management charges, expenses or allowances that might otherwise beoffset against an amount chargeable under Case VI can be used to reduce the amount ofincome brought into charge. An example is provided in CTM48837.