IFM06330 - Tax elected funds (TEFs): tax treatment & distributions made by TEFs: attribution of income and the distributions made by a TEF

Once the different components of the income of a TEF have been identified as per IFM06320, all the income shown in the accounts as available for distribution or accumulation must be attributed between TEF distributions (dividends) and TEF distributions (non-dividends) in accordance with regulation 69Z59 of SI2006/964.

TEF distributions (dividends)

The following component parts of the income of a TEF are attributed to TEF distributions (dividends):

• dividend income;
• property investment income; and
• property business income.

TEF distributions (dividends) are treated as dividends on shares which are paid on the distribution date (see regulation 69Z60 of SI2006/964).

TEF distributions (non-dividend)

The income attributed to TEF distributions (non-dividend) is any other income (see IFM06320).

TEF distributions (non-dividend) are treated for the purposes of the Tax Acts as a payment of yearly interest made on the distribution date (regulation 69Z61 of SI2006/964).

In the hands of investors the distribution is treated in the same way as interest received by them – see IFM07400.

Deduction of tax from TEF distributions (non-dividend) up to 5 April 2017

Prior to 5 April 2017, because this distribution was treated as a payment of yearly interest, income tax at the basic rate had to be deducted by the TEF (see section 874 of the Income Tax Act 2007) and a TEF accounted for the income tax on forms CT61.

TEFs, like other authorised investment funds, are not required to deduct income tax on payments of yearly interest on or after 6 April 2017.

Payment of TEF distributions (non-dividend) without deduction of tax up to 5 April 2017

Prior to 5 April 2017, certain non-dividend distributions to investors could be made without deduction of income tax – see IFM02800.