IFM06620 - 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 then it can only re-enter the regime from an AP that started 6 years after the regime ceased to apply.
• 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 under regulation 69Z71(6) of SI 2006/964 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 IFM07600) that were applied by investors within the charge to corporation tax will continue to apply where the TEF becomes a normal AIF.