IFM10260 - Exempt unauthorised unit trust (EUUT) relief for deemed payments
Regulation 18 of SI 2013/2819
Where the unit holders are treated as receiving income from an EUUT in respect of a period of account (see IFM11200) the trustees are treated as making a deemed payment of the same amount on the final day of the period of account.
The total amount of relief for the deemed payment must not exceed the trustees’ modified net income for the tax year (see IFM10240). If there is an excess, that excess is to be treated as if it were a deemed payment in the basis period for the following tax year.
Where the total amount of relief for the deemed payment including any excess brought forward is less than the trustees’ modified net income for the tax year, the trustees will have a liability to income tax on the unrelieved balance.
Deemed payments not eligible for relief – regulations 19 and 20
The trustees are not entitled to relief for a deemed payment to the extent that it can legally only be made out of:
- Capital; or
- Income that is exempt from income tax.
An EUUT may have a non-eligible investor but still be treated as meeting the eligible investor test – see IFM10220. If such a non-eligible investor was not UK resident at the time income is treated as received, the trustees are not entitled to relief for a deemed payment attributable to the income of that unit holder. In effect the EUUT will be chargeable to income tax on the amount of any deemed payment ineligible for relief. This ensures there is no loss of tax if there is an ineligible investor.
If an EUUT loses its approved status and becomes a non-exempt UUT the trustees will be liable to corporation tax on income and gains without any deduction for distributions made to unit holders so it would not matter whether unit holders are UK resident or not.
Effect of equalisation arrangements on relief for trustees – regulation 21
A UUT applying for approval as an EUUT must state whether it will operate equalisation arrangements. Where an EUUT operates equalisation arrangements and units are cancelled the EUUT will pay out a cancellation price that includes income accrued on the units cancelled. The accounts of the EUUT will then include an amount typically shown as “income paid out on units cancelled” and the trustees are entitled to relief on this amount as a deemed payment.