Income and Corporation Taxes Act 1988

468L Interest distributions. U.K.

(1) Subsection (2) below applies where the total amount shown in the distribution accounts as available for distribution to unit holders is shown as available for distribution as yearly interest.

[F1 (1A) For the purposes of this Chapter no amount shall be shown as so available unless the authorised unit trust in question satisfies the qualifying investments test throughout the distribution period.]

(2) The Tax Acts shall have effect (subject to what follows) as if the total amount were payments of yearly interest made on the distribution date by the company referred to in section 468(1) to the unit holders in proportion to their rights.

(3) In the following provisions of this Chapter “an interest distribution” means a payment of yearly interest treated as made by virtue of subsection (2) above.

(4) The obligation under section 349(2) to deduct a sum in its application to an interest distribution is subject to sections 468M and 468N (and, in its application to an interest distribution to a unit holder in respect of his accumulation units, is an obligation to deduct a sum out of the amount being invested on the unit holder’s behalf).

(5) [F2 Nothing in subsection (2) above or Chapter II of Part IV of the Finance Act 1996 (loan relationships) shall require any amount relating to an interest distribution to be brought into account for the purposes of that Chapter otherwise than by virtue of paragraph 4(4) of Schedule 10 to that Act; but the interest distributions of an authorised unit trust for a distribution period] shall be allowed as a deduction against the profits of the authorised unit trust for the accounting period in which the last day of that distribution period falls.

(6) The deduction mentioned in subsection (5) above may be made—

(a) in computing the total profits for the accounting period, after the deduction of any expenses deductible in computing profits apart from section 75 and either before or after the deduction under that section of sums disbursed as expenses of management; or

(b) against total profits as reduced by any other relief from tax or against total profits not so reduced.

(7) Where in any accounting period the amount deductible by virtue of subsection (5) above exceeds the amount from which the deduction is made—

(a) the excess may be carried forward to the succeeding accounting period; and

(b) the amount so carried forward shall be treated as if it were deductible in that succeeding accounting period by virtue of subsection (5) above.

[F3 (8) For the purposes of this section an authorised unit trust satisfies the qualifying investments test throughout a distribution period (“the relevant period”) if at all times in that period, the market value of the qualifying investments exceeds 60 per cent. of the market value of all the investments of that trust.

(9) Subject to subsection (13) below, in this section “qualifying investments”, in relation to an authorised unit trust, means the investments of that trust which are of any of the following descriptions—

(a) money placed at interest;

(b) securities;

(c) shares in a building society;

(d) qualifying entitlements to a share in the investments of another authorised unit trust;

[F4 (e) qualifying shares in an open-ended investment company.]

(10) For the purposes of subsection (9) above an entitlement to a share in the investments of another authorised unit trust is a qualifying entitlement at any time in the relevant period if, and only if, the other authorised unit trust would itself (on the relevant assumption) satisfy the qualifying investments test throughout that period.

(11) For the purposes of subsection (10) above the relevant assumption is that the only investments of the other authorised unit trust which are to be regarded as qualifying investments are those falling within paragraphs (a) to (c) of subsection (9) above.

(12) In this section “security” does not include shares in a company; and references in this section to investments of an authorised unit trust are references to investments subject to the trusts of that authorised unit trust but do not include references to cash awaiting investment.

[F5 (12A) For the purposes of subsection (9) above shares in an open-ended investment company are qualifying shares at any time in the relevant period if, and only if, throughout that period the aggregate market value of those investments of the company falling within paragraphs (a) to (c) of that subsection exceeds 60 per cent. of the market value of all its investments.

(12B) In subsection (12A) above references to investments of an open-ended investment company are references to investments comprised in the scheme property of that company, but do not include references to cash awaiting investment.

(12C) In this section—

• “collective investment scheme" has the meaning given by section [F6 235 of the Financial Services and Markets Act 2000];

• “open-ended investment company" means, subject to subsection (12D) below, an open-ended investment company within the meaning given by section [F7 236 of the Financial Services and Markets Act 2000] which is incorporated in the United Kingdom;

• “scheme property" of an open-ended investment company means, subject to subsection (12E)(b) below, the property subject to the collective investment scheme constituted by the company.

(12D) Each of the parts of an umbrella company shall be regarded for the purposes of subsections (9) and (12A) above as an open-ended investment company and the umbrella company as a whole shall not be so regarded and shall not be regarded as a company.

(12E) In relation to a part of an umbrella company—

(a) references in subsections (12A) and (12B) above to investments of an open-ended investment company shall have effect as references to such of the investments as under the arrangements referred to in subsection (12F) below form part of the separate pool to which that part of the umbrella company relates;

(b) the reference in subsection (12B) above to the scheme property of an open-ended investment company shall have effect as if it were a reference to such property subject to the collective investment scheme constituted by the umbrella company as is comprised in the separate pool to which that part of the umbrella company relates;

(c) a person for the time being having rights in that part shall be regarded as the owner of shares in the open-ended investment company which that part is deemed to be by virtue of subsection (12D) above, and not as the owner of shares in the umbrella company itself.

(12F) In subsections (12D) and (12E) above “umbrella company" means a company—

(a) which falls within the definition of “open-ended investment company" in section [F8 236 of the Financial Services and Markets Act 2000],

(b) which is incorporated in the United Kingdom,

(c) whose instrument of incorporation provides for arrangements for such pooling as is mentioned in section [F9 235(3)(a)] of that Act in relation to separate parts of the scheme property of the company, and

(d) the owners of shares in which are entitled to exchange rights in one part for rights in another;

and any reference to a part of an umbrella company is a reference to such of the arrangements as relate to a separate pool.

(12G) For the purposes of subsections (12E) and (12F) above, “owner of shares" in relation to an open-ended investment company means—

(a) the beneficial owner of the shares, or

(b) where the shares are held on trust (other than a bare trust), the trustees of the trust, or

(c) where the shares are comprised in the estate of a deceased person, the deceased’s personal representatives.]

(13) The Treasury may by order amend subsection (9) above so as to extend or restrict the descriptions of investments of an authorised unit trust that are qualifying investments.

(14) An order made by the Treasury under subsection (13) above may—

(a) make different provision for different cases; and

(b) contain such incidental, supplemental, consequential and transitional provision as the Treasury may think fit;

and, without prejudice to the generality of paragraph (b) above, such an order may make such incidental modifications of subsection (11) above as the Treasury may think fit.]

Textual Amendments

F1 S. 468L(1A) inserted (with effect in accordance with Sch. 6 para. 11(3) of the amending Act) by Finance Act 1996 (c. 8), Sch. 6 para. 11(1)

F2 Words in s. 468L(5) substituted (with effect in accordance with s. 105(1) of the amending Act) by Finance Act 1996 (c. 8), Sch. 14, para. 26 (with Sch. 15)

F3 S. 468L(8)-(14) inserted (with effect in accordance with Sch. 6 para. 11(3) of the amending Act) by Finance Act 1996 (c. 8), Sch. 10 para. 11(2)

F4 S. 468L(9)(e) added (25.2.1997) by The Authorised Unit Trusts (Interest Distributions) (Qualifying Investments) Order 1997 (S.I. 1997/212), art. 3

F5 S. 468L(12A)-(12G) inserted (25.2.1997) by The Authorised Unit Trusts (Interest Distributions) (Qualifying Investments) Order 1997 (S.I. 1997/212), art. 4

F6 Words in s. 468L(12C) substituted (1.12.2001 with effect in accordance with art. 1(2)(a) of the amending S.I.) by The Financial Services and Markets Act 2000 (Consequential Amendments) (Taxes) Order 2001 (S.I. 2001/3629), art. 38(2)(a)

F7 Words in s. 468L(12C) substituted (1.12.2001 with effect in accordance with art. 1(2)(a) of the amending S.I.) by The Financial Services and Markets Act 2000 (Consequential Amendments) (Taxes) Order 2001 (S.I. 2001/3629), art. 38(2)(b)

F8 Words in s. 468L(12F)(a) substituted (1.12.2001 with effect in accordance with art. 1(2)(a) of the amending S.I.) by The Financial Services and Markets Act 2000 (Consequential Amendments) (Taxes) Order 2001 (S.I. 2001/3629), art. 38(3)(a)

F9 Words in s. 468L(12F)(c) substituted (1.12.2001 with effect in accordance with art. 1(2)(a) of the amending S.I.) by The Financial Services and Markets Act 2000 (Consequential Amendments) (Taxes) Order 2001 (S.I. 2001/3629), art. 38(3)(b)

Modifications etc. (not altering text)

C1 S. 468L modified (28.4.1997) by The Open-ended Investment Companies (Tax) Regulations 1997 (S.I. 1997/1154), regs. 1, 9, 13