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HMRC internal manual

Company Taxation Manual

AIFs: Property authorised investment funds (Property AIFs): deducting and accounting for tax from distributions: gross payments and categories of investors entitled to receive gross payments

Entitlement of investors to receive gross distributions (regulation 69Z24 SI 2006/964)

A Property AIF will only make gross payments of Property Income Distributions (PIDs)and Property AIF distributions (interest) to a participator who satisfies the conditionsrequired to receive both forms of distribution gross, that is:

  • they would be entitled to receive a distribution out of the tax-exempt profits of a UK Real Estate Investment Trust (UK-REIT) gross (such entitlement being defined at regulation 7 SI 2006/2867 and explained in the page entitled ‘Distributions: administration: gross payment’ in the GREIT manual), and
  • they would also be entitled to receive payments of yearly interest gross (such entitlement being defined at sections 933 to 937 Income Tax Act 2007.

It is not possible to pay of one of these forms of distribution without deduction oftax, but not the other (regulation 69Z24).

In practice, the only recipients listed in regulation 7 SI 2006/2867 or sections 933 to937 ITA/07 who are not listed in both are:

  • distributions arising in respect of shares held as investments of the Overseas Service Pension Fund (established pursuant to section 7(1) of the Overseas Aid Act 1966) (which qualify for gross payment of REITs distributions but not interest payments), and
  • persons entitled to receive the income of a fund entitled to exemption under section 614(3) of ICTA (certain colonial, etc pension funds) (who qualify for gross payment of interest but not of REITs distributions).

The Property AIF must pay PIDs and PAIF distributions (interest) gross. if itreasonably believes that the person beneficially entitled to the payment falls within bothof the categories above. For further information on what would be classified asreasonable belief please refer to CTM48864.

The following list sets out categories of investors that will be entitled to receive grossdistributions:

  • UK tax resident company,
  • UK authorised investment fund,
  • non UK tax resident company carrying on a trade through a permanent establishment and which is required to bring the distributions into account for computing its profits for the purposes of calculating its corporation tax,
  • the account manager of an ISA,
  • a local authority,
  • a health service body,
  • a public office or Crown department,
  • a charity or other similar body that has been granted exemption in the same way as a charity,
  • a scientific research organisation,
  • the scheme administrator of a registered pension scheme (eg a SIPP),
  • the sub scheme administrator of a sub scheme which forms part of a split scheme under the Registered Pensions (Splitting of Schemes),
  • a parliamentary pension fund,
  • account provider of a child trust fund,
  • a European investment fund,
  • certain partnerships (with investors falling in the categories listed above).

See regulation 7 SI 2006/2867 and sections s933 to 937 Income Tax Act 2007 for the fullwording relating to any of the above categories in cases of doubt.