IFM06320 - Tax elected funds (TEFs): tax treatment & distributions made by TEFs: components of income received by a TEF

When a TEF receives income, it must identify the different elements of the income and classify it into the components specified below (regulation 69Z56 of SI2006/964). Normal rules for management expenses apply (see IFM02270). Any expenses referable to specific income should be allocated against that income.

Dividend income

This is any income received from a company distribution that is taxable or exempt under Part 9A CTA 2009.

Within the TEF regime, the option to tax exempt foreign distributions under section 931R of the Corporation Tax Act 2009 does not apply.

Property investment income

This is any property income distributions received from the shares held by a TEF in UK real estate investment trusts and/or property authorised investment funds, as explained in IFM06130.

Property business income

The property condition prevents a TEF from receiving income from a UK or overseas property business. If a TEF inadvertently receives such income for a limited period of time then such income must be recognised in the TEF as property business income (and taxed, as explained in IFM06340) until the TEF rectifies the inadvertent breach of the property condition. That may occur where a TEF takes over another AIF which happens to have a small amount of UK property income.

Other income

Any income not derived from company distributions, a UK or overseas property business or property income distributions, will fall into this category. The main form of income to fall into this category will be interest received from interest bearing assets.

The tax treatment of each component part of the income

The tax treatment of each component part of the income in the fund, once it has been attributed into the two types of distributions, is explained in IFM06340.