The Unauthorised Unit Trusts (Tax) Regulations 2013

Explanatory Note

(This note is not part of the Regulations)

These Regulations make provision about the treatment of the trustees or unit holders of unauthorised unit trusts for the purposes of income tax, corporation tax and capital gains tax. They are made in exercise of the powers conferred by section 217 of the Finance Act 2013. They set out the requirements for an unauthorised unit trust to be approved as an exempt unauthorised unit trust; and make provision for the taxation of gains and income of exempt and non-exempt unauthorised unit trusts as well as the tax treatment of the unit holders and trustees of those trusts. These Regulations make provision for the treatment of certain types of investment or disposal made by exempt unauthorised unit trusts. They include provisions for consequential amendments to various enactments relating to the treatment of unauthorised unit trusts. These Regulations also contain transitional provisions.

Part 1 of these Regulations contains introductory and general provisions. Regulation 1 provides for citation, commencement and effect. Regulation 2 defines terms for the purposes of the Regulations.

Part 2 of these Regulations is concerned with exempt unauthorised unit trusts.

Chapter 1 of Part 2 defines an exempt unauthorised unit trust and sets out the conditions a trust must meet to be an exempt unauthorised unit trust in a period of account. The conditions include that all unit holders are eligible investors (defined in regulation 3(2)) and that the trust is approved for the period.

Chapter 2 deals with approval as an exempt unauthorised unit trust. Regulation 4 deals with the application to the Commissioners for Her Majesty's Revenue and Customs (“the Commissioners”) for approval. Regulation 5 sets out the material that an application for approval must contain and makes particular provisions for a provisional application for approval. Regulation 6 sets out the response the Commissioners may give to an application which includes notifying the managers or trustees of an applicant to provide further particulars. Regulation 7 sets out the continuing requirements on which approval as exempt unauthorised unit trust is conditional. These requirements include preparing accounts in accordance with specified standards. Regulation 8 deals with withdrawal of approval by the Commissioners and regulation 9 deals with appeals against a rejection of an application for, or withdrawal of, approval.

Chapter 3 provides that gains accruing to an exempt unauthorised unit trust are not chargeable gains for the purposes of the Taxation of Chargeable Gains Act 1992.

Chapter 4 deals with the taxation of income of exempt unauthorised unit trusts. Regulation 11 sets out the rules to ascertain the basis period for a tax year for an exempt unauthorised unit trust. Regulation 12 provides that if income arises to the trustees of an exempt unauthorised unit trust, the income is treated as the income of the trustees; and that if income arises to those trustees it is charged at the basic rate (if the dividend ordinary rate would otherwise apply). Regulation 13 provides that the trustees of an exempt unauthorised unit trust are the persons to or on whom an allowance or charge relating to relief for capital expenditure is to be made. Regulation 14 makes provision for the treatment of accrued income profits (under Chapter 2 of Part 12 of the Income Tax Act 2007 (“ITA 2007”)) of an exempt unauthorised unit trust.

Chapter 5 deals with the charge to tax on unit holders of an exempt unauthorised unit trust. Regulation 15 provides that tax is charged on income treated as received by a unit holder and sets out the calculation of such income by reference to distribution periods (defined in regulation 15(7)). Regulation 16 provides that the person liable for tax charged under Chapter 5 is the unit holder treated as receiving the income. Regulation 17 sets out where the charge falls in priority to other enactments providing for a charge to tax on income.

Chapter 6 provides for relief for trustees of an exempt unauthorised unit trust. Regulation 18 provides that trustees are entitled to relief for a tax year equal to the amount of deemed payments for that year. The amount of deemed payments is equal to the amount of income treated, under regulation 15(2), as received by the unit holders for a period of account. Regulations 19 and 20 set out cases where amounts are ineligible for relief under regulation 18. Regulation 21 makes provision for the effect of equalisation arrangements on the amount for which the trustees are entitled to relief.

Chapter 7 contains miscellaneous provisions relating to the treatment of exempt unauthorised unit trusts. Regulations 22 and 23 set out the circumstances in which no tax is charged on the trustees under regulation 17 of the Offshore Funds (Tax) Regulations 2006 S.I. 2009/3001 on the disposal of an interest in a “non-reporting fund” (as defined in those Regulations). Regulation 24 provides that certain investment transactions entered into by the trustees of an exempt unauthorised unit trust are treated as entered into otherwise than in the course of a trade. Regulation 25 provides that the main rate of corporation tax (within the meaning of section 3 of the Corporation Tax Act 2010) applies to an authorised investment fund which is a unit holder in an exempt unauthorised unit trust. Regulation 26 provides that a unit holder of an exempt unauthorised unit trust is entitled by notice to require the trustees to provide a statement in writing showing the amount of income treated as received by the unit holder for a distribution period.

Part 3 of these Regulations is concerned with non-exempt unauthorised unit trusts.

Chapter 1 defines a non-exempt unauthorised unit trust as an unauthorised unit trust which is not an exempt unauthorised unit trust.

Chapter 2 deals with the tax treatment of non-exempt unauthorised unit trusts. Regulation 28 provides that the Tax Acts have effect as if the trustees were a UK resident company and the rights of the unit holders were shares in the company. Regulation 29 provides that Part 3 of the Corporation Tax Act 2009 (“CTA 2009”) (relief for companies with small profits) does not apply to non-exempt unauthorised unit trusts.

Part 4 of these Regulations is concerned with transitional provisions.

Chapter 1 sets out the transitional provisions for an exempt unauthorised unit trust. Regulation 30 applies in the case of a trust which was an unauthorised unit trust immediately before 6 April 2014 and which is approved as an exempt unauthorised unit trust for a period including 6 April 2014. Regulation 30(2) establishes which tax year is the transitional year for a trust to which regulation 30 applies. Regulation 30(3) makes provision to establish the income of a trust for a tax year which is a transitional year. Regulations 30(4) to (5) deal with the application of other provisions contained in these Regulations to the transitional year in certain cases. Regulation 30(6) make provision for treating deemed payments or deductions as being made on the accounting date of a transitional year (defined in regulation 30(8)). Regulation 30(7) makes provision in particular circumstances for an amount of income of a trust to be treated as arising in the trust's transitional year where it otherwise would be treated as arising in another year.

Chapter 2 sets out the transitional provisions for non-exempt unauthorised unit trusts. Regulation 31 makes transitional provisions to treat income as being received the day before an unauthorised unit trust comes with the charge to corporation tax where it would otherwise be treated as received by unit holders after the unauthorised unit trust comes within the charge to corporation tax (under Chapter 10 of Part 4 of the Income Tax (Trading and Other Income) Act, Part 12 of ITA 2007 or Chapter 5 of Part 10 CTA 2009). Regulation 32 provides that the repeals and consequential amendments to enactments relating to the tax treatment of unauthorised unit trusts contained in Part 5 of these Regulations do not apply to trusts which, between 24 May 2012 and 5 April 2014, have at least one unit holder who was an eligible investor and one unit holder who was not.

Part 5 provides for repeals and consequential amendments to various enactments relating to the treatment of unauthorised unit trusts.

A Tax Information and Impact Note covering this Instrument has been published on the HMRC website at http://www.hmrc.gov.uk/thelibrary/tiins.htm