PART 3REPORTING FUNDS AND THE TREATMENT OF PARTICIPANTS IN REPORTING FUNDS
CHAPTER 8THE TAX TREATMENT OF PARTICIPANTS IN REPORTING FUNDS
Tax treatment of the reported income of the fund in the hands of participants
Reported income: general provisions94
1
In the case of a reporting fund which is not a transparent fund, the Tax Acts have effect as if the excess (if any) of the reported income of the fund in respect of a reporting period over the distributions made by the fund in respect of the reporting period were additional distributions made to the participants in the fund in proportion to their rights.
2
In the case of a reporting fund which is a transparent fund, the Tax Acts have effect as if the excess (if any) of the reported income of the fund in respect of a reporting period over the income of the fund for the reporting period were additional income of the participants in the fund in proportion to their rights.
F12A
But to the extent that the participant’s rights in the fund are rights to which regulation 30 (rights in certain existing holdings) applies, the excess specified in F4paragraphs (1) and (2) shall be reduced proportionately.
3
The excess specified in paragraphs (1) and (2) is treated as made, on the fund distribution date, F5or on such earlier date as the reported income in respect of that reporting period is recognised in the participant’s accounts, to participants holding an interest in the fund at the end of the reporting period.
F33A
If—
a
a participant disposes of an interest in a reporting fund in a reporting period (“the earlier period”), and
b
section 106A of TCGA 1992 (identification of securities: capital gains tax) applies to identify the whole or any part of that interest with an interest acquired in the next reporting period,
then, for the purposes of paragraph (3), the disposal of the interest so identified shall be ignored and the participant shall be treated as holding that interest at the end of the earlier period.
4
In these Regulations the “fund distribution date” for a reporting period of a reporting fund F6means the date six months following the last day of the reporting period.
F2Equalisation amounts not treated as distributions94A
1
This regulation applies if—
a
a participant has acquired by way of initial purchase an interest in a reporting fund, and
b
the reporting fund operates full equalisation arrangements.
F72
Where this regulation applies, distributions are reduced in accordance with either option 1 or option 2.
Option 1
Under this option—
- a
the amount of any actual distributions to the participant in respect of the reporting period is reduced by the equalisation amount, and
- b
the amount of any excess treated as additional distributions made to the participant is reduced by the amount, if any, by which the equalisation amount exceeds the amount of any actual distributions to the participant in respect of the reporting period.
- a
Option 2
Under this option—
- a
the amount of any excess treated as additional distributions made to the participant is reduced by the equalisation amount, and
- b
the amount of any actual distributions to the participant in respect of the reporting period is reduced by the amount, if any, by which the equalisation amount exceeds the excess.
- a
3
But the amount of any excess treated as additional distributions or any actual distributions shall not be reduced to below nil.
4
For the purposes of paragraph (2) the excess is the amount treated as additional distributions made to the participant in accordance with regulation 94(1) and (2).
Participants chargeable to income tax: corporate funds95
1
This regulation applies if—
a
a reporting fund makes a distribution to a participant chargeable to income tax in respect of a reporting period, and
b
the fund falls within section 40A(2)(a) of FA 2008 M1.
2
This regulation also applies if some or all of the excess specified in regulation 94(1) is treated as made by such a fund to such a participant.
3
If section 378A of ITTOIA 2005 M2 (offshore fund distributions) applies to any amount falling within paragraph (1) or (2), the amount is charged to income tax in accordance with that section.
4
If paragraph (3) does not apply to any amount falling within paragraph (1) or (2), but the participant is entitled to a tax credit on receiving a distribution falling within paragraph (1), section 397A of ITTOIA 2005 M3 (savings and investment income: dividends from non-UK resident companies) also applies to the excess falling within paragraph (2).
Participants chargeable to income tax: other non-transparent funds96
1
This regulation applies if—
a
a reporting fund makes a distribution to a participant chargeable to income tax in respect of a reporting period,
b
the fund falls within paragraph (b) or (c) of section 40A(2) of FA 2008, and
c
the fund is not a transparent fund.
2
This regulation also applies if some or all of the excess specified in regulation 94(1) is treated as made by such a fund to such a participant.
3
Any amount to which paragraph (1) or (2) applies is charged to income tax—
a
under section 378A of ITTOIA 2005 (offshore fund distributions), or
b
(if that section does not apply) under Chapter 8 of Part 5 of ITTOIA 2005 (miscellaneous income: income not otherwise charged) for the year of assessment in which the distribution is made, but sections 688(1) and 689 of ITTOIA 2005 M4 (income charged and person liable) do not apply.
Participants chargeable to income tax: transparent funds97
1
This regulation applies if—
a
a reporting fund is a transparent fund, and
b
some or all of the excess specified in regulation 94(2) is treated as income of a participant by virtue of that provision.
2
Any amount to which paragraph (1) applies is charged to income tax under Chapter 8 of Part 5 of ITTOIA 2005 as relevant foreign income within the meaning given by section 830 of ITTOIA 2005 M5 for the year of assessment in which the distribution is made, but sections 688(1) and 689 of ITTOIA 2005 do not apply.
Participants chargeable to corporation tax98
1
This regulation applies if some or all of the excess specified in regulation 94 is treated as made to a participant chargeable to corporation tax.
2
The amount is exempt if it would be exempt if it were an actual distribution made by the fund.