Tax elected funds (TEFs): leaving the TEF regime: effects of leaving the TEF regime
Effects of cessation from leaving or exclusion from the regime
The effects of a fund leaving or being excluded from the regime are as follows.
- If a termination notice is issued by HMRC then the TEF will not be allowed to re-enter the regime at a later date.
- If a fund chooses the leave the TEF regime voluntarily by issuing a termination notice (see CTM48971), then it can only re-enter the regime from an AP that started 6 years after the regime ceased to apply. So, for example, if a TEF has an AP that ends on the 31 December, and on the 1 December 2009, it notified HMRC that it wanted to leave the TEF regime, then it would be able to do so on the 31 December 2009 and would become a normal AIF on the 1 January 2010. It would need to remain out of the regime for the period beginning 1 January 2010 to 31 December 2015 but then would be able to rejoin the TEF regime on the 1 January 2016.
- The consequence of leaving the regime (where a termination notice has been issued by the TEF or HMRC) is that Part 4B of SI2006/964 ceases to apply to the fund and to its investors.
- Where a termination notice is issued by HMRC then in circumstances where a TEF distributions (non-dividend) is made between the date that the TEF is deemed to leave the regime (ie the beginning of the AP in which the notice was issued) and the date the notice was issued then the AIF (former TEF) should treat the non-dividend distribution already made as a deduction in its CT calculation. However, this will not apply to any future distributions as it will be an AIF (outside the TEF regime).
- Any corporate streaming rules (as defined in CTM48943) that were applied by participants within the charge to corporation tax will continue to apply where the TEF becomes a normal AIF.