UK authorised investment funds(AIFs) can pay either
Dividends paid by UK AIFs are treated in the same way as dividends from
ordinary company shares in UK companies.
Interest distributions paid by UK AIFs treated in exactly the same way as
interest on bank, building society and local authority savings. But,
if you are a UK resident individual, you cannot arrange for your interest
from AIFS to be paid gross. The payment must have tax deducted before you
receive it.
If you are an individual not ordinarily resident in the UK you may be able to arrange for your interest to be paid gross. For further information you should speak to your Fund Manager. You may also find the guidance on the “Not-ordinarily Resident Declarations for Investors in Authorised Investment Funds” page is helpful. See Interest Distribution Guidance
Please refer to our Taxback pages for general points on savings and taxation.
Note all the income you receive from an AIF is taxable.
The main things you need to include in working out your taxable income are listed in our Taxback pages. Interest and dividends from AIFs should be included for this purpose.
Dividend income is currently taxed at 10% up to the basic tax limit, and at 32.5% above that. A tax year runs from 6 April one year to 5 April in the next.
When you get your dividend you also get a tax voucher. This shows the amount of the dividend payable and the amount of the tax credit that goes with that dividend. (Your income for tax purposes is the dividend plus the tax credit).
The tax credit is not tax deducted on your behalf, but it represents the fact that the company paying the dividend has paid tax on the profits used to pay the dividend. The tax credit, which is 10% of the dividend income (i.e. the total of the dividend and the tax credit), can be set against your tax liability on the dividend. The tax credit, like tax credits from normal companies, is not payable to non-taxpayers.
Please note that if you are a UK Resident individual you cannot arrange to have interest paid gross for AIFs, this includes the interest paid to children. However, where appropriate parents or guardians can claim tax back on the child’s behalf.
Children, like adults, can have a certain amount of income before they start paying tax. They are entitled to the same personal allowance as other people. So, for example, for the tax year 2003-2004, they can claim back the tax on their savings income if their total taxable income is less than £4,615.
Children under 16 in Scotland or under 18 in England, Wales and Northern Ireland cannot apply personally to get their tax back; a parent, guardian or trustee must do it for them.
Be careful
There are special rules if the savings (including units in unit trusts and shares in open-ended investment companies) have been given by a parent. If gifts from a parent produce more than £100 gross income a year, the whole of the income from the gifts is normally taxed as that parent’s income. A child cannot get back any tax on that income. Nor can interest paying accounts be registered to have interest paid without tax taken off.
Many UK AIFs allow children to hold units or shares in a designated account. This simply means that the units or shares are held in the name of the parent or guardian but designated with the child’s initials. The units or shares and any income still belong to the child. The £100 rule for savings income applies.
| 1. | Q. If a Grandparent invests in a unit trust for
their grandchild, can they have the interest paid gross? A. Who ever the unit holder is they cannot get interest paid gross on distributions from UK AIFs if they are a UK resident individual. |
| 2. | Q. Can you claim back tax on interest paid on units held on
behalf of a child? A. Yes, the parent or guardian would normally be able to claim on behalf of a child, but subject to certain rules in respect of gifts. |
| 3. | Q. How do I claim back tax paid where the unit holder is a minor? A. You would need to contact the Claims Office appropriate to child’s address. See Claims Offices for a list. |
| 4. | Q. Can I get interest paid gross if I am not a UK resident? A. Yes, you should seek guidance from your fund manager on making not ordinarily resident declarations, you also might like to refer to the guidance on Interest Distributions from UK AIFs. |
| 5. | Q. Can someone who does not have sufficient income to be taxable,
claim back tax deducted on interest paid? A. Yes, if their total income is below the limit for paying tax, then they would be able to claim back the tax deducted. |
| 6. | Q. What happens if the tax is deducted at 20%, but I am only
within the 10% band? Can I reclaim the tax back? A. You can claim the difference back between the tax taken off at 20% and what you should have paid. |
| 7. | Q. Are the tax credits attached to dividends payable? A. Tax credits are not payable although they may be set against your tax liability on the dividend. Tax credits are not payable to non-tax payers. Please see the final paragraph of the ‘What income is taxable?’ section of this note. |
