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HMRC internal manual

Company Taxation Manual

Tax elected funds (TEFs): tax treatment & distributions made by TEFs: introduction

As set out in CTM48911, the aim of the tax elected fund (TEF) regime is to move the point of taxation from the authorised investment fund (AIF) to the investor, and this chapter explains how this is achieved in most cases.

Under the regime, the TEF is required to identify the different components of its income, (see CTM48932) and to attribute the income to make two types of distribution, a dividend distribution and a non-dividend distribution (taxed in the hands of the investor in the same way as a payment of yearly interest). The process of attributing the TEF’s income is set out in CTM48933.

UK investors are then taxed as though they have received a UK dividend, including the non-payable dividend tax credit and a payment of yearly interest, which is also explained in CTM48933.

The tax treatment of the component parts of the income received by the TEF is then explained in more detail in CTM48934.