Chapter 9: Unauthorised unit trusts
Overview
1481.This Chapter provides rules about unauthorised unit trusts (UUTs).
1482.There are related sections about UUTs in Chapter 13 of Part 15. Those sections provide for the trustees to be treated as making deemed payments representing the gross amount of the income they receive. They also provide for the trustees to be treated as deducting income tax from those payments at the basic rate, and for the collection of that income tax.
Section 504: Treatment of income of unauthorised unit trust
1483.This section sets out the basis of the taxation of the trustees of a UUT. It is based on section 469(1), (2) to (2B) and (9) of ICTA.
1484.The taxable income of the trustees of a UUT is treated as that of the trustees rather than the unit holders (subsection (2)).
1485.All income of the trustees is to be charged at the basic rate (subsection (3)). The special trust rates do not apply (see subsection (4)(a) and section 481(1)(b)).
1486.Accordingly, certain sums that would ordinarily be treated as carrying a tax credit, or where the recipient is treated as having paid income tax, are not so treated if received by UUT trustees (subsection (4)(b) to (d)).
1487.Subsection (5) provides that annual payments to unit holders do not come within the special discretionary payments regime in section 494. The general provision for trustees to provide statements of tax deducted, in section 352 of ICTA, is rewritten in section 495. But the provisions concerning such statements by UUT trustees are in section 975 in Chapter 19 of Part 15, where they more naturally belong. So section 495 is also excluded by subsection (5).
Section 505: Relief for trustees of unauthorised unit trust
1488.This section gives relief to the trustees of a UUT for the payments to unit holders treated as made under Chapter 13 of Part 15. It is based on sections 348(1) and 835(6) of ICTA.
1489.The relief is given by deduction in calculating net income. This is in line with the approach adopted generally to rewriting the provisions about charges on income. See Change 81 in Annex 1 and the overview commentary on Chapter 4 of Part 8.
1490.The relief is limited by reference to two factors:
the case law enacted in section 450 (see the commentary on that section and Change 82 in Annex 1); and
the trustees’ modified net income for the tax year.
Section 506: Special rules for trustees affected by section 733 of ICTA
1491.This section is based on section 733(2) of ICTA.
1492.Sections 731 to 735 of ICTA are anti-avoidance provisions. They are concerned with cases where:
a person (“the first buyer”) buys securities and subsequently sells them to someone else; and
the first buyer becomes entitled to receive any interest payable on them.
1493.Section 733(2) of ICTA addresses the case where:
interest is payable to the UUT trustees as the first buyer;
that interest, or some part of it, would be exempt, but is not so, because section 733(1) of ICTA cancels the exemption; and
the trustees of the UUT are treated as making one or more deemed payments in the same tax year as that in which the interest arises.
1494.The source legislation provides that an annual payment is to be treated as “paid out of profits or gains not brought into charge”. It follows that, even though the exemption is cancelled by section 733(1) of ICTA, leaving interest in charge to income tax, the payment must not be treated as paid out of that interest.
1495.This is rewritten so that relief is only given if, and to the extent that, the trustees have “non-affected income” equal to the payment treated as made. Non-affected income is defined as modified net income less affected income. On modified net income, see the commentary on sections 448 and 1025.
1496.Because this is a rule relating to a very specific type of income, it is necessary to apply it before applying section 505(7).
