PART 4THE TREATMENT OF PARTICIPANTS IN AUTHORISED INVESTMENT FUNDS
CHAPTER 2PARTICIPANTS CHARGEABLE TO INCOME TAX
Deduction of tax from interest distributions: general
Deduction of tax where interest distributions made26
1
This regulation applies if an interest distribution is made for a distribution period to a participant chargeable to income tax.
2
Any obligation to deduct a sum under F4section 874 of ITA 2007 is subject to the provisions of this regulation.
3
In this Part the “deduction obligation” means the obligation specified in paragraph (2).
4
The deduction obligation does not apply to the interest distribution if—
a
the participant is a company;
b
the participant consists of the trustees of a unit trust scheme;
c
the reputable intermediary condition is met with respect to a participant on the distribution date (see regulation 27); F5...
d
the residence condition is met with respect to a participant on the distribution date (see regulation 30); F2...
f
the offshore marketing condition is met with respect to the class of units in relation to which the distribution is made (see regulation 33A).
5
But if the participant is a company which is the trustee of the trust to which (or under which) the interest distribution is made (or received), the deduction obligation is not excluded by virtue of paragraph (4)(a).
6
In its application to an interest distribution to a participant in respect of accumulation units, the deduction obligation is an obligation to deduct a sum out of the amount being credited to scheme capital on the participant's behalf.
The reputable intermediary condition
The reputable intermediary condition27
1
The reputable intermediary condition is met with respect to a participant on the distribution date if conditions A to C are met.
2
Condition A is that the interest distribution is paid on behalf of the participant to a company.
3
Condition B is that the legal owner has reasonable grounds for believing that the participant is not F10... resident in the United Kingdom.
4
Condition C is that the company mentioned in paragraph (2)—
a
is subject to the EC Money Laundering Directive,
b
is subject to equivalent non-EC provisions, or
c
is a company which—
i
is resident in a regulating country or territory, and
ii
is an associated company of a company which is subject to paragraph (a) or (b).
The reputable intermediary condition: further provisions28
1
This regulation applies for the purposes of Condition C in regulation 27.
2
A company is subject to the EC Money Laundering Directive if it is a credit institution or financial institution as defined by Article 1 of Directive 91/308/EEC, as amended by Directive 2001/97/EC.
3
A company is subject to equivalent non-EC provisions if it is required by the law of any country or territory which is not a member State to comply with requirements similar to those which, under Article 3 of that Directive (as so amended), member States must ensure are complied with by credit institutions and financial institutions.
4
A country or territory is a regulating country or territory if it either is a member State or imposes requirements similar to those which, under Article 3 of that Directive (as so amended), member States must ensure are complied with by credit institutions and financial institutions.
5
A company is to be treated as another's associated company if it would be so treated for the purposes of Part 11 of ICTA (close companies) (see section 416 of that Act).
Consequences of reasonable but incorrect belief29
1
This regulation applies if conditions A to D are met.
2
Condition A is that an interest distribution is made to a participant.
3
Condition B is that the legal owner, in reliance on the reputable intermediary condition being met with respect to the participant, does not comply with the deduction obligation in relation to the interest distribution.
4
Condition C is that the deduction obligation would apply but for the reputable intermediary condition being met.
5
Condition D is that (contrary to the belief of the legal owner) the participant is in fact F11... resident in the United Kingdom.
The residence condition
The residence condition30
1
The residence condition is met with respect to a participant on the distribution date if any of conditions A to E is met.
2
Condition A is that, in relation to an interest distribution which is not made to or received under a trust, there is a valid declaration, made by the participant, that the participant is not F12... resident in the United Kingdom.
3
Condition B is—
a
that the participant holds the units as the personal representative of a deceased person, and
b
that the deceased, before his death, made a declaration, valid at the time of his death, that he was not F13... resident in the United Kingdom.
4
Condition C is—
a
that the participant holds the units as the personal representative of a deceased person, and
b
that the personal representative has made a declaration that the deceased, immediately before his death, was not F14... resident in the United Kingdom.
5
Condition D is that, in the case of an interest distribution made to or received under a trust where the whole of the income is, or falls to be treated as, or under any provision of the Tax Acts is deemed to be, the income of a person other than the trustees of that trust, there is a valid declaration, made by the person in question that F15the person is not resident in the United Kingdom.
6
Condition E is that, in circumstances in which condition D does not apply and with respect to a participant in the case of an interest distribution made to or received under a trust, there is a valid declaration, made by the trustees of that trust that—
a
the trustees are not resident in the United Kingdom, and
b
each beneficiary of the trust is F16... not resident in the United Kingdom.
Residence declarations31
1
A declaration made for the purposes of regulation 30 must—
a
be in such form as may be required or authorised by the Commissioners;
b
be made in writing to the legal owner of the authorised investment fund in question; and
c
contain any details or undertakings required by paragraphs (2) to (4) below.
2
A declaration made for the purposes of condition A or B in regulation 30 must contain—
a
the name and principal residential address of the person making it; and
b
an undertaking that he will notify the legal owner if he becomes F17... resident in the United Kingdom.
3
A declaration made for the purposes of condition C in regulation 30 must contain the name of the deceased and his principal residential address immediately before his death.
4
A declaration made for the purposes of condition D or E in regulation 30 must contain—
a
the names and principal residential addresses of the trustees of the trust or, in the case of a trustee which is a company, the name of the company and the address of its registered or principal office;
b
the names and principal residential addresses of the beneficiaries of the trust or, in the case of a beneficiary which is a company, the name of the company and the address of its registered or principal office; and
c
an undertaking that the trustees of the trust will notify the legal owner of the authorised investment fund in question if—
i
they become resident in the United Kingdom,
ii
any beneficiary of the trust named in the declaration becomes F18... resident in the United Kingdom, or
iii
any person who becomes a beneficiary of the trust after the making of the declaration either is at the time of becoming a beneficiary, or subsequently becomes, F18... resident in the United Kingdom.
References to beneficiaries in regulations 30 and 3132
In regulations 30 and 31 references to a beneficiary are references to any person who is known to the trustees of the trust to be either—
a
a person who is or will or may become, entitled to any income of the trust, whether in the form of income or not, or
b
a person to whom any such income may be paid, or for whose benefit any such income may be applied, whether in the form of income or not, in the exercise of a discretion by them.
Interest distributions: the position of the legal owner33
1
For the purposes of determining whether an interest distribution should be made with or without any deduction, the legal owner is entitled to treat a declaration made for the purposes of regulation 30 as valid.
2
But the legal owner may not treat a declaration as valid if condition A or B is met.
3
Condition A is that the legal owner receives a notification in compliance with an undertaking under regulation 31 that a person in question has become resident F19... in the United Kingdom.
4
Condition B is that the legal owner comes into possession of information by some other means which indicates that such a person is or may be resident F19... in the United Kingdom.
F7The offshore marketing condition33A
The offshore marketing condition is met with respect to a class of units if—
a
marketing of units of that class is not directed to investors resident in the United Kingdom, and
b
before units of that class are acquired, information in relation to those units is available to investors to the effect that—
i
no sum representing income tax will be deducted from any interest distribution in relation to those units, and
ii
an investor must notify HM Revenue and Customs of any distribution in relation to such units if the investor is chargeable to income tax for the tax year in which the distribution date falls.
The non-liability condition
The non-liability conditionF134
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Qualifying certificatesF135
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The contents conditionF136
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The supplier conditionF137
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The time limit conditionF138
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The continuing validity conditionF139
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The qualifying circumstances conditionF140
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The joint holding conditionF141
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Qualifying certificates valid for only part of jointly held accounts: introductoryF142
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Qualifying certificates valid for only part of jointly held accounts: the general ruleF143
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Qualifying certificates valid for only part of jointly held accounts: further provisionsF144
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Consequences of notice under regulation 39(6)F145
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Qualifying certificate not in writingF146
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F3Annual payments to non-residents
Annual Payments – duty to deduct income tax46A
1
An annual payment made to a participant which meets the conditions in paragraphs (2) to (6) is not a qualifying annual payment for the purposes of Chapter 6 of Part 15 of ITA 2007 (deduction from annual payments and royalties).
2
The payment must be charged to income tax under Chapter 7 of Part 5 of ITTOIA 2005 (annual payments not otherwise charged).
3
The payment must be made in respect of the participant’s interest in an authorised investment fund other than a Property AIF.
4
The payment and the amount of the payment must be directly or indirectly referable to, and must not be more than, any management fees paid to the manager of the authorised investment fund in respect of the participant’s interest in the fund.
5
Any management fees must not exceed an amount representing a reasonable commercial amount in all the circumstances.
6
At the time the payment is made, the person making the payment must have reasonable grounds for believing F8that—
a
the participant is not resident in the United Kingdom, or
b
the payment is made in respect a class of units in relation to which of the offshore marketing condition in regulation 33A is met.
Consequences of reasonable but incorrect belief46B
1
This regulation applies if—
a
an annual payment is made to a participant without a sum representing income tax on the payment being deducted from it,
b
at the time the payment is made, the condition in F9regulation 46A(6)(a) is met,
c
the payment would be a qualifying annual payment but for that condition being met, and
d
at the time the payment is made, the participant is resident in the United Kingdom.
2
Section 900 (deduction from commercial payments made by individuals) and section 901 (deduction from annual payments made by other persons) of ITA 2007 apply as if the payment were a qualifying annual payment.
Regs. 46A, 46B and cross-heading inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Authorised Investment Funds (Tax) (Amendment) Regulations 2013 (S.I. 2013/1772), regs. 1(1), 2(2)