AIFs: Property authorised investment funds (Property AIFs): tax treatment of distributions in the hands of participants: participants within the charge to income tax - property income distributions
Tax treatment for income tax payers general (regulation 69Z18 SI 2006/964)
The property income distribution (PID) is generally taxable as profits of a UK propertybusiness (within the meaning of section 264 ITTOIA 2005).
Persons within the charge to income tax will receive PIDs net of basic rate tax. Theamount that is chargeable to tax is the full amount of the PID that is, the amountof cash received plus the amount shown as deducted from the PID on the voucher thataccompanies the distribution. If the participant holds 100 shares and the Property AIFpays a PID of £1.00 per share then the Property AIF will pay £80 to the shareholder andpay over the £20 deducted to HMRC (assuming the basic rate of income tax is 20%). Theamount chargeable on the shareholder would be £100, made up of £80 cash paid and £20tax deducted.
The exception to the property income treatment above is for members of Lloyds andfinancial traders, for whom the PID is a receipt of their trade.
Basic rate taxpayers
Basic rate taxpayers have no further tax to pay on the PID, as their tax liability onthe PID is met in full by the tax deducted on payment. Receiving a PID does not result inbasic rate taxpayers having to complete a self assessment return if they would not need todo so otherwise.
Individuals not liable to income tax
Investors who are not liable to tax on income can claim repayment of all the tax shownas deducted on the statement attached to the PID, by completing a claim form R40 in thenormal way further information is available on the HMRC website at: http://www.hmrc.gov.uk/taxback/claiming-back.htm.
Higher rate taxpayers
Higher rate taxpayers will have a further liability to tax on their PID. If theyreceive a net PID of £80 after deduction of £20 tax, the amount of income brought intocharge is £100, and the tax due in respect of the PID is £40 (£100 at 40%). The £20tax shown as deducted is credited against the £40 due, leaving a further £20 to pay.
Higher rate taxpayers who do not normally complete a tax return will need to inform theirtax office when they receive a PID so that their tax codes can be adjusted to collect theadditional tax. Unless the amount of additional income from the Property AIF is large, ahigher rate taxpayer would not be sent a tax return just because they were receiving PIDs.
Completion of tax returns
Although chargeable to tax as property income, the PID should not be shown on theProperty Pages. Investors in a Property AIF do not therefore need to obtain and completeProperty Pages, if they have no income from property apart from the PID. Instead the grossamount of any PIDs should be recorded together with the total amount of tax deducted inthe other income section in the main tax return. Losses on other propertybusiness, for example income from buy-to-let properties, must not be off-set against thePID.