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HMRC internal manual

Company Taxation Manual

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HM Revenue & Customs
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AIFs: Property authorised investment funds (Property AIFs): tax treatment of distributions in the hands of participants: property income distributions: general principles

Property income distributions (PIDs) (regulation 69Z18 SI 2006/964)

In general, distributions from the tax-exempt income of a Property AIF are taxable asthe income of a UK property business, in the case of a participant chargeable to incometax, or as the profits from a Schedule A business for a participant chargeable tocorporation tax.

PIDs do not carry a tax credit

Generally, where an individual receives a distribution from a company resident in theUK, a one- ninth tax credit is attached to the distribution. However, as the Property AIFis exempt from tax on property income, no tax has been paid to provide a tax credit anymore than there is when a distribution by a UK-REIT is paid out of its tax–exemptprofits.

However, the Property AIF is generally required to deduct income tax at basic rate whenpaying a PID, unless the participant is subject to UK corporation tax.

PIDs are separate from other property income

A PID is treated as profits of a separate business from any other Schedule A oroverseas property business that the participant may have. Investors must treat receipts ofproperty income distributions from different Property AIFs as well as from UK real estateinvestment trusts (UK-REITs), whether one or more, as receipts of the same business. Thismeans that losses on other rental business of a shareholder cannot be set off againstdistributions from Property AIFs or from UK-REITs.

This treatment of Property AIF distributions as deriving from a separate business isextended to the share of the distribution received by a partner in a partnership which isa participant in a Property AIF.

This tax treatment continues to apply after the open-ended investment company has left theProperty AIF regime in respect of distributions made in respect of the period before thefund ceased to be within the regime.

Dividend statements provided to participants by a Property AIF (and by a former PropertyAIF) will make clear the amount of the distribution that is treated as a PID and theamount of tax that has been deducted from it on payment. See CTM48863.

Certain PIDs are treated as trade receipts

A PID is not treated as property income where a participant would normally be taxableon distributions as trading receipts. This affects financial traders and members ofLloyd’s. In such cases it remains taxable as a trade receipt.

Specific categories of participant