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HMRC internal manual

Investment Funds Manual

Determining the amount of income that may be retained

Investment trust generally prepare their accounts in accordance with the AIC SORP. Income retained will be the amount shown as retained in the company’s accounts, after dividends paid and payable for that period and proper provision for liabilities but before any transfers to or from reserves.

The maximum amount that an investment trust is permitted to retain in respect of an accounting period (regulation 19(1) of SI 2011/2999) is the greater of –

  1. 15% of its income (calculated in accordance with regulation 20 of SI 2011/2999, see IFM 14444); and
  2. The amount of income that the company may be required to retain as a consequence of any restriction imposed by law (this would include, for example, a Companies Act provision but not a prohibition on the distribution of capital in a company’s Articles of Association).

The maximum amount that may be retained may be reduced if an investment trust has an investment in one or more offshore reporting funds (regulation 21 of SI 2011/2999), see IFM14448.

Once the maximum retention has been calculated as above, it must be compared to a further figure, accumulated revenue losses brought forward from previous accounting periods. Revenue losses means losses as shown in the investment trust’s accounts, and not tax losses. Where those losses exceed the figure provided by (1) or (2) above, the maximum retention is increased to the amount of accumulated losses brought forward. The following examples help to explain this –

Example 1

Income calculated under regulation 20: 30,000,000

15% of income: 4,500,000

The maximum retention is therefore £4,500,000 (assume no income is required to be retained as a consequence of any restriction imposed by law).

Example 2

As per Example 1, except that there are accumulated revenue losses brought forward of £6,000,000. This exceeds the figure for 15% of income, and the maximum retention is therefore £6,000,000 (assume no income is required to be retained as a consequence of any restriction imposed by law).

Example 3

As per Example 1, except that there are accumulated revenue losses brought forward of £2,000,000. This does not exceed the figure for 15% of income, so the maximum retention remains £4,500,000 (assume no income is required to be retained as a consequence of any restriction imposed by law).