“Interest” distributions by Investment Trust Companies - Mazars - United Kingdom
“Interest” distributions by Investment Trust Companies
The regulations to facilitate the designation of dividend distributions as interest by investment trust have now been laid and will come into force on 1 September 2009, in relation to amounts distributed on or after that date.
The aim is to allow tax-transparency in respect of amounts arising in respect of interest-bearing securities and related derivatives where tax would otherwise be chargeable and trapped in the investment trust.
This facility is fairly flexible, as it has no minimum fixed-interest holding requirements (unlike “bond” Authorised Investment Funds) and the investment trust may designate part of the distribution as interest and the rest as a dividend.
The amount that may be designated as interest is limited to the company’s “qualifying interest income” which comprises the company’s excess of credits over debits in respect of
- loan relationships
- derivative contracts the underlying subject matter of which represents loan relationships and/or currency
- contracts of differences the underlying subject matter of which consists wholly of any one or more of interest rates, creditworthiness and currency.
Debits and credits in respect of the above in an investment trust exclude debits and credits of a capital nature, accounted for as such under the AITC SORP. The limit for interest designation therefore equates to distributable amounts on those assets.
There are rules to determine whether the interest distributions should be paid net or gross of tax, along the lines applicable to Authorised Investment Funds, which means that apart from the obvious benefit of paying gross to exempt institutions such as pension schemes, charities and local authorities, the investment trust company should obtain and maintain the correct documentation to comply with the residence and reputable intermediary conditions. This means that in order to take advantage of the fact that distributions may be made out of income already accrued before 1 September, systems to ensure compliance with those rules should be ready by the time the next distribution falls to be made.
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- Copyright 2012 - Mazars - United Kingdom
