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HMRC internal manual

Company Taxation Manual

From
HM Revenue & Customs
Updated
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Tax elected funds (TEFs): breaches of conditions: breach of the property condition, the genuine diversity of ownership condition & the scheme documentation condition

Breach of the property condition, the genuine diversity of ownership condition or the scheme documentation condition

If a TEF breaches the property condition, the genuine diversity of ownership condition or the scheme documentation condition (explained at CTM48913 to CTM48916) then the manager of the fund should follow the information requirements set out at the beginning of the ‘general provisions’ for breaching a condition, covered in CTM48962.

Consequences of such a breach

If, on receipt of the information above, HMRC is content that the breach was inadvertent and that it has been rectified within a reasonable timeframe, then the TEF can continue to remain in the regime under regulation 69Z66(2) SI2006/964 (unless there are multiple breaches of the same condition - explained in CTM48962 or multiple breaches of separate conditions - explained in CTM48965).

If the breach was inadvertent but it was not rectified within a reasonable time (as explained in CTM48962) then a termination notice will be issued under regulation 69Z66(3) SI2006/964. See CTM48971 for further information on termination notices.

Taxable income that arises from a breach of the property condition

If a TEF breaches the property condition and receives income from a UK or overseas property business as defined in CTA09/S205 and 206, then while the TEF takes action to remedy the breach (that is to dispose of the asset or cease the UK or overseas property business) then any income received will be defined as property business income and treated as taxable income subject to corporation tax as explained in CTM48934.