IFM03324 - Authorised investment funds (AIFs): taxation of investors within the charge to CT: loan relationships

A company holding in an AIF - loan relationship – Chapter 3 of Part 6 of Corporation Tax Act 2009 (CTA09)

There are specific rules to prevent companies avoiding the loan relationship rules in Part 5 of CTA09 by investing in AIFs. Where a company holds units in an AIF and that AIF fails the qualifying investments test (see IFM03326) at any time in the company’s accounting period then the company’s holdings are taxed as if they were rights under a creditor relationship of the company participating in the AIF - see CFM43010.

Any AIF that is able to make interest distributions will always fail the qualifying investments test. In some cases AIFs not making or not able to make interest distributions may also fail the qualifying investments test.

Interest distributions made by an AIF to a company investor whose holding is treated as a loan relationship are brought into account when they are due and payable, in accordance with fair value accounting.

Dividend distributions to a company made by an AIF which meets the qualifying investment test are treated in the normal way (see IFM03320). In particular, regulation 96A of SI 2006/964 ensures that the normal income streaming rules apply to the unfranked part of a dividend distribution which would otherwise fall within Chapter 3 of Part 6 CTA09.