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HMRC internal manual

Company Taxation Manual

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HM Revenue & Customs
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Tax elected funds (TEFs): leaving the TEF regime: issue of termination notices by the TEF or HMRC

Termination notice issued by the tax elected fund (TEF)

Where the manager of a TEF wishes the fund to leave the regime, then under regulation 69Z70 SI2006/964, they must give a notice specifying the final day on which the regulations are to apply to it, which must be the final day of an accounting period. The notice must be given in writing to HMRC, and the date specified must be after the date on which HMRC receive the notice. The notice must also specify the reasons for leaving the regime. See CTM48972 for the effect of such a notice.

Termination notice issued by HMRC

As set out under the previous chapter relating to breaches of conditions (CTM48960 onwards), HMRC will, in certain circumstances, issue a termination notice to the manager of the TEF under regulation 69Z71 SI2006/964.

The effect of giving the notice will be that the TEF will be taken to have ceased to be within the regime at the end of the accounting period (AP) immediately preceding the AP in which the notice was given. Where a termination notice is served then any TEF distributions (non-dividend) made before the notice was given will still be deductible in the fund’s corporation tax calculation.

Tax treatment of participants where a notice has been issued

The tax treatment of participants that receive distributions made before a termination notice is issued, will not be affected by the issue of a termination notice.

Appeal against termination notice

Where the manager of a fund that receives a termination notice from HMRC then under regulation 69Z72 SI 2006/964 they may appeal against the notice. The notice of appeal must be sent to HMRC within 28 days, beginning with the day on which the termination notice was given and should be sent to:

Andrew Marshall
HM Revenue & Customs Collective Investment Schemes Centre
Concept House
5 Young Street
Sheffield
S1 4LB

Tel: 0114 2969361

e-mail: andrew.marshall@hmrc.gsi.gov.uk

If an appeal is later notified to the tribunal, the tribunal will determine whether the issue of the termination notice was just and reasonable. If the tribunal decides that it was, it will confirm the notice; if not, it will set aside the notice.

Other reasons for exclusion from the regime

Under regulation 69Z73 SI2006/964, where a TEF is party to a merger or takeover and as a result fails to meet one or more of the conditions of entry to the regime, then its accounting period will end on the date of the merger or takeover, and the fund will cease to be within the regime from that time. If a TEF is taken over by an authorised investment fund (AIF) that is not a TEF, then the AIF will be able to apply to become a TEF according to the rules explained in CTM48923, unless a termination notice had been issued to the AIF six years prior to the merger - see CTM48922.

See CTM48972 for the effects of leaving the regime.