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HMRC internal manual

Savings and Investment Manual

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HM Revenue & Customs
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Collective investment schemes: unauthorised unit trusts: taxation of the investor

Distributions from unauthorised unit trusts

Chapter 10 of Part 4 of ITTOIA05 charges income tax on income received by a unit holderfrom an unauthorised unit trust to which ITA07/S504 applies. Under ITTOIA05/S547, the unitholder is treated as receiving such income if an amount is shown in the scheme’saccounts as available for payment to unit holders or for investment. ITTOIA05/S549specifies that the person liable for tax is the unit holder treated as receiving theincome.

ITTOIA05/S550 treats any income tax deducted from such income (SAIM6050)as income tax paid by the recipient.

ITTOIA05/S548 charges the gross amount received by the unit holder in the tax year for adistribution by applying the formula:

SAI x R/TR

In this formula

SAI is the total shown in the scheme’s accounts as income available for payment tounit holders or investment

R is the unit holder’s rights

TR is all the unit holder’s rights.

The income is grossed up (see SAIM1100) by reference to thebasic rate of tax for the year in which the income is treated as received. The income istreated as received on the date or latest date set out in the scheme documentation, unlessthat date is more than 12 months after the end of the distribution period, or there is nodate, in which case it is treated as received on the last day of the distribution period.

ITTOIA05/S548 (6) and (7) provide that distribution periods are taken to be periods of 12months, even if the scheme’s rules specify shorter or longer periods.

On occasions an interim distribution may be made with the suggestion that there is noaggregation of income (that is, no calculation of income available for distribution) sothat there is no deemed payment. In such circumstances the unauthorised unit trust shouldnot issue a tax certificate crediting the unit holders with tax deducted.