IFM06610 - 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 to take an authorised investment fund out of the TEF regime, then under regulation 69Z70 of SI2006/964 they must give HMRC a written notice specifying the final day on which the TEF regime will apply. That day must be the final day of an accounting period and a day after the date on which HMRC receives the notice. The notice must specify the reasons for leaving the regime. IFM06620 outlines the effect of such a notice.

Termination notice issued by HMRC

As set out at IFM06500 onwards, HMRC may issue a termination notice to the manager of the TEF under regulation 69Z71 of SI2006/964. The effect of that notice will be that the TEF will be taken to have ceased to be within the regime at the end of the accounting period immediately preceding the accounting period in which the notice was given.

Tax treatment of investors where a notice has been issued

The tax treatment of investors 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 receives a termination notice from HMRC then under regulation 69Z72 of SI 2006/964 they may appeal against the notice to the First-tier Tribunal. The tribunal will determine whether the issue of the termination notice was just and reasonable and may confirm or set aside the notice.

Other reasons for exclusion from the regime

Under regulation 69Z73 of 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 IFM06230, unless a termination notice had been issued to the AIF up to six years prior to the merger - see IFM06220.