IFM04420 - AIFs: Property authorised investment funds (PAIFs): deducting and accounting for tax from distributions: deduction of tax from distributions made by PAIFs

Deduction of tax from property income distributions (PIDs) (regulation 69Z22 SI2006/964)

A PAIF will pay a Property Income Distribution (PID) net of the basic rate of income tax in force for the year in which it is made, unless regulation 69Z24 SI 2006/964 applies so that a person is entitled to receive such payments gross, as discussed in IFM04430. PIDs made to a non-resident investor must always be made under deduction of income tax, unless the recipient is a company carrying on a trade in the United Kingdom through a permanent establishment.

The tax deducted from PIDs is treated as income tax paid by the recipient and is accordingly taken into account in determining the income tax or corporation tax payable by, or repayable to, the recipient.

PAIF distributions (dividends)

PAIF distributions (dividends) are treated in the same manner as dividends made by any other UK company.

Deduction of tax from PAIF distributions (interest) up to 5 April 2017 (regulation 69Z23 SI 2006/964)

Until 5 April 2017 interest distributions were treated as if they were payments of yearly interest, and accordingly section 874 ITA 2007 required they will be paid net of income tax at the basic rate, subject to regulation 69Z24 SI 2006/964. As with PIDs, and unlike interest distributions from other authorised investment funds, these distributions were always paid net of tax to non-residents unless the recipient was a company carrying on a trade in the United Kingdom through a permanent establishment. Some investors were entitled to receive PIDs and PAIF distributions (interest) without deduction of tax.

From 6 April 2017 there is no requirement to deduct tax from interest distributions – see IFM04430.