SAIM6190 - Collective investment schemes: unauthorised unit trusts: enterprise zone schemes: taxation of investors
Taxation of investors in Enterprise Zone Property scheme
The scheme trustee agrees each investor's share of expenditure,
income, etc. with Charities, Assets and Residence (Trusts)
Nottingham , but it is the responsibility of the investor to claim
capital allowances on expenditure on buildings or plant and
machinery, and to return any income or balancing charges. The
certificate provided by the trustee will contain agreed figures and
will form the basis of his claim or return. But failure by the
trustees does not relieve the investor of his personal obligations.
The investor is treated as a lessor who has invested directly
in the enterprise zone property and plant and machinery and is
entitled to capital allowances in respect of the expenditure
incurred. The certificate provided by the trustee will show his
agreed share of expenditure on buildings or plant and machinery in
EZP schemes on which capital allowances are due.
The HMRC office dealing with the claim may accept the
certificate as evidence of the qualifying expenditure incurred, or
may ask Charities, Assets and Residence (Trusts) Nottingham to
verify the details in cases of doubt. In the event of a claim being
made in a sum greater than that shown on the certificate (perhaps
on the basis of the total investment) HMRC will ask the investor to
refer back to the trustee for the explanation of the
difference.
Balancing charges/allowances
An investor may incur a balancing charge or become entitled to an allowance if either
- the trustee sells (or receives insurance, moneys etc for) a building or plant and machinery, or
- the investor disposes of any part of his interest in the scheme by transfer or sale of his units.
The certificate provided to the investor by the trustee will
show the parts of any proceeds attributable to his interest in the
buildings or plant. If an investor disposes of his holding (or part
of that holding) he is treated as having disposed of his interest
in the buildings and plant (or a part of his interest in each of
the buildings etc. if he sells only some of his units) for the
purposes of determining any balancing adjustments. Since the sale
proceeds will normally need to be apportioned to the various assets
HMRC will normally apply the original apportionment of the
investment (to land, qualifying buildings etc.).
Balancing adjustments may be due in cases where a certificate
is not produced or if the rental income ceases or diminishes. The
certificate will generally show the number of units held or amount
invested. A reduced figure will indicate a disposal by the unit
holder.
Income
The certificate provided to the investor will give details of
amounts of rental income on which he is chargeable as property
income under Part 3 of ITTOIA05, as well as other income chargeable
under Part 4 of ITTOIA05 (interest etc). These can be checked in
cases of doubt with Charities, Assets and Residence (Trusts)
Nottingham.
EZP schemes are long term investments (up to 25 years because
of the possibility of balancing charges) with substantial reliefs
in the first year. HMRC offices should ensure that the income and
charges are brought into account over that period, together with
capital gains tax charges on the disposal of units or the receipt
of a capital distribution (CG57682).
Interest relief
Since investors in EZP schemes are treated as lessors who have invested directly in property etc in the Enterprise Zone any amount they borrow for the purpose of investment is treated as a loan obtained for such an investment. Interest paid on such a loan may therefore qualify for relief subject to the other conditions for relief in respect of a loan for a qualifying purpose being satisfied.
