The Income Tax (Authorised Unit Trusts) (Interest Distributions) Regulations 2003

Explanatory Note

(This note is not part of the Regulations)

These Regulations replace the Income Tax (Authorised Unit Trusts) (Interest Distributions) Regulations 1994 (S.I. 1994/2318) and relate to certain payments of yearly interest by authorised unit trusts (“interest distributions”) which may be made without deduction of tax pursuant to sections 468M to 468P of the Income and Corporation Taxes Act 1988 (as amended by section 203 of and Part 5 of Schedule43 to the Finance Act 2003 (c. 14)). Interest distributions may be made without deduction of tax if the unit holder is a company or the trustees of a unit trust scheme, or if at the time of the payment to the unit holder the residence condition or the reputable intermediary condition is satisfied. The Regulations first modify the application of sections 468M(1)(a), 468O and 468P of the 1988 Act (cases where there is no obligation to deduct tax, residence and reputable intermediary conditions and residence declarations) in relation to interest distributions made to or received under a trust (other than a unit trust scheme). Secondly the Regulations make provision enabling the Board of Inland Revenue (“the Board”) to require authorised unit trusts to supply information and make records available for inspection in connection with the payment of interest distributions without deduction of tax.

Regulation 1 provides for citation, commencement and effect. Authority for the retrospective effect of certain of the amendments is given by section 203(14) of the Finance Act 2003.

Regulation 2 contains definitions.

Regulations 3 to 6 modify the application of sections 468M, 468O and 468P of the 1988 Act in relation to interest distributions made to or received under a trust. Regulation 4 excludes corporate trustees from the category of unit holder entitled to receive interest distributions without deduction of tax unless they satisfy either the residence condition or the reputable intermediary condition. Regulations 5 and 6 modify the residence condition and have the effect that, in order for the interest distribution to be paid to a trust without deduction of tax, there has to be in existence a valid declaration made by the trustees of the recipient trust that they are not resident in the United Kingdom and each beneficiary of the trust who is known to the trustees is not ordinarily resident or, if a company, not resident in the United Kingdom.

Regulation 7, by way of an exception to regulations 3 to 6, ensures that where the whole of an interest distribution made to or received under a trust constitutes income of a person other than the trustees, there has to be in existence a valid declaration made by that person that he is not ordinarily resident or, if a company, not resident in the United Kingdom, in order for the interest distribution to be paid without deduction of tax.

Regulations 8 and 9 enable the Board to require trustees of authorised unit trusts to supply information and make documents and other records available for inspection for the purpose of determining whether interest distributions were properly made without deduction of tax.

Regulation 10 specifies the purposes for which information obtained by the Board under regulation 8 or 9 may be used.

Regulation 11 revokes the Income Tax (Authorised Unit Trusts) (Interest Distributions) Regulations 1994.