REV BN 12: Competitiveness of UK-Authorised Collective Investment Funds
Who is likely to be affected?
1. UK-Authorised Unit Trusts (AUTs), Open-Ended Investment Companies (OEICs) and their foreign investors.
General description of the measure
2. As announced on 16 October 2002, two measures will remove barriers to sales of UK-authorised investment funds (AUTs/OEICs) abroad as follows:
Interest Distributions
3. The first measure will make it easier for foreign investors to receive interest distributions from AUTs/OEICs gross of tax where they invest through a reputable intermediary, or if they are a company or unit trust scheme. The current rules are unnecessarily cumbersome and impede export of UK funds.
Inheritance Tax (IHT)
4. The second will remove holdings by foreign investors in AUTs/OEICs from a potential charge to IHT. This exposure also impedes sales outside the UK, even though in practice holdings by foreign investors in UK funds would rarely if ever be large enough to be chargeable.
Operative date
5. Effective for interest distributions made, and for occasions of charge to IHT, on or after 16 October 2002.
Current law and proposed revisions
Interest Distributions
6. Overseas investors can receive interest distributions from AUTs/OEICs gross of tax if they complete a "not ordinarily resident" (NOR) declaration. However, because funds are typically sold through intermediaries it is often difficult for funds to get the declarations. The rule changes, effective from 16 October 2002, will mean that NOR declarations are no longer needed where interest is paid (a) to a reputable intermediary on behalf of the foreign investor and the fund has reasonable grounds for believing that payment can be made gross; or (b) to unit/share holders that are either companies or the trustees of a unit trust scheme.
IHT
7. People who are not domiciled in the UK, and trusts established by such people, are chargeable (above the tax-free threshold) only on assets which are situated in the UK: that includes UK financial assets such as AUTs/OEICs. From 16 October 2002 IHT will not be chargeable on AUTs/OEICs held by these non-UK domiciled investors or by their trusts.
Further advice
8. If you have any questions about this change, please contact Public Enquiry Unit on 020 7438 6420 to 6425.
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