SAIM6030 - Collective investment schemes: authorised investment funds: the taxation of the investor

Individuals who invest in AIFs: the tax charge

Individuals (and other investors within the charge to income tax) pay income tax on the distributions from an AIF. (For the treatment of corporate investors see CTM48500 onwards SAIM20000).

Investors in AUTs and OEICs are taxed on interest distributions and dividend distributions as Savings and Investment Income, under Part 4 of ITTOIA05. Interest distributions are taxed under Chapter 2 along with other forms of interest. Dividend distributions are taxed in Chapter 3 along with other types of dividend. The interest and dividend distributions in question are the amounts shown in distribution accounts, as available for distribution to the unit holders in the AUT or owners of shares in the OEIC.

‘Distribution’ and other terms are defined for interest and dividend distributions for AUTs and OEICs at sections 375, 378, 388 and 391.

In each case the date of payment is

• the date specified in the trust’s or company’s documentation for the distribution period in question,
• or, if no date is specified, the last day of the distribution period.

The rules do not apply if the AUT or OEIC is held as part of an approved personal pension scheme.

Interest distributions

ITTOIA05/S373 and ITTOIA05/S376 tax the interest distribution of an OEIC or an AUT respectively. The amount is taxed as yearly interest of the unit holder. This is subject to the OEIC or AUT meeting the qualifying investments test throughout the distribution period (see SAIM6100). Tax is deductible under Part 15 of ITA07 ( SAIM9060 onwards) from interest payments made to UK resident individuals.

The amount of each investor’s payment is so much of the total interest distribution as is proportionate to the owner’s shares (in the case of an OEIC) or the unit holder’s rights (in the case of an AUT).

Dividend distributions

ITTOIA05/S386 and ITTOIA05/S389 tax the dividend distribution of an OEIC or AUT respectively. The amount is taxed as dividends on shares paid to the owners of the OEIC shares or the unit holders in the AUT (which is treated as a UK resident company in which the unit holders’ rights are shares).

The amount of each investor’s payment is so much of the total dividend distribution as is proportionate to the owner’s shares (in the case of an OEIC) or the unit holder’s rights (in the case of an AUT).

Capital gains on disposals of units

A disposal, for the purposes of TCGA92, of units in an authorised investment fund (including shares in an open-ended investment company) may give rise to a charge to capital gains tax. See the Capital Gains Manual – CG57680 onwards (for unit trusts) and CG57750 onwards (for open-ended investment companies).