IFM05510 - Investors in property authorised investment funds (PAIFs): investors within the charge to income tax - property income distributions

Tax treatment for income tax payers – general (regulation 69Z18 SI 2006/964)

The property income distribution (PID) is generally taxable as profits of a UK property business (within the meaning of section 264 ITTOIA 2005). The exception to the property income treatment above is for members of Lloyd’s and financial traders, for whom the PID is a receipt of their trade. Persons within the charge to income tax will receive PIDs net of basic rate tax.

Basic rate taxpayers

Basic rate taxpayers have no further tax to pay on the PID, as their tax liability is met in full by the tax deducted.

Individuals not liable to income tax

Investors who are not liable to tax on income can claim repayment of all the tax shown as deducted on the statement attached to the PID, by completing a claim form R40 in the normal way – further information is available on the HMRC website at: https://www.gov.uk/government/publications/income-tax-claim-for-repaymen….

Higher and additional rate taxpayers

Higher and additional rate taxpayers will have a further liability to tax on their PID. For example, if a higher rate taxpayer receives a net PID of £80 after deduction of £20 tax, the amount of income brought into charge is £100, and the tax due in respect of the PID is £40 (£100 at 40%). The £20 tax shown as deducted is credited against the £40 due, leaving a further £20 to pay.

Higher and additional rate taxpayers who do not normally complete a tax return will need to inform their tax office when they receive a PID so that their tax codes can be adjusted to collect the additional tax. If the amount of additional income from the PAIF is large they might be asked to complete a tax return.

Completion of tax returns

Although chargeable to tax as property income, the PID should not be shown on the Property Pages so investors do not need to obtain those pages if they have no other property income. The gross amount of any PIDs should be recorded together with the total amount of tax deducted in the ‘other income’ section in the main tax return. Losses on other property business, for example income from buy-to-let properties, cannot be set off against a PID.