IFM14550 - Breach of income distribution requirement

Investment trusts must comply with the income distribution requirement (see regulations 19 to 22 of SI 2011/2999 and IFM14440). Where an investment trust fails to distribute the minimum amount required by the regulations for an accounting period then a breach may arise, and if so the breach may be either minor or serious.

Where there is a difference between the minimum amount of income that an investment trust is required to distribute in relation to an accounting period (in accordance with regulations 19 and 21) and the amount of income which was actually distributed in relation to that period then, for the purposes of deciding whether a breach arises, and if so whether it is treated as minor or serious, it is necessary to compare the two amounts and to calculate the difference as a percentage of the company’s income. For these purposes, the company’s income is to be calculated in accordance with regulation 20 except that the income is to include any excess amount that falls to be reported to it in accordance with regulation 92(1)(b) (contents of report to Investors: non-transparent funds) of the Offshore Funds Regulations (see IFM14440).

Difference less than 1%

If the difference between the minimum amount of income that an investment trust is required to distribute in relation to an accounting period and the amount of income which was actually distributed in relation to that period is less than 1% of the income of the investment trust (calculated as noted above) and the failure to comply with the income distribution requirement is inadvertent, then the company will not be treated as breaching the income distribution requirement.

Difference more than 1% but less than 5%

If the difference between the minimum amount of income that an investment trust is required to distribute in relation to an accounting period and the amount of income which was actually distributed in relation to that period is greater than 1% but less than 5% of the income of the investment trust (calculated as noted above), the breach is a minor breach. See IFM14560 for the consequences of minor breaches.

Difference more than 5%

If the difference between the minimum amount of income that an investment trust is required to distribute in relation to an accounting period and the amount of income which was actually distributed in relation to that period is greater than 5% of the income of the investment trust, the breach is a serious breach.

See IFM14560 for the consequences of serious breaches.