Aug 052015

I can’t believe it. I’ve received a response to my email to HMRC enquiring what will happen to the tax rate for retail investment funds when the corporate rates are coming down to 18%.

Someone thinks I’m important at last! (Now if only The Times Money section will admit their VCT error).

The answer is a nice straightforward – “They may be. Then again, they may not.”This is the original email I sent on Friday 31 July:

Date: 31 July 2015

Subject: Corporation Tax Main Rate and Authorised Investment Funds

Dear Miss Milner

I have a query about the forthcoming changes to the corporation tax main rate, which is intended to come down to 18% by 2020.

For many years, authorised unit trusts and OEICs have been subject to corporation tax at a special rate of 20% – this was at a time when the main corporation tax rate was higher at 30-33%. Technically they are taxed at the basic rate of income tax currently in force – which happens to be 20% (ICTA 1988 s 468(1A), followed by CTA 2010 s 614).

What is going to happen to authorised funds when the main corporate tax rate starts decreasing?

The Finance Bill as it currently stands sets out the future rates in Clause 7. However, these changes wouldn’t apply to authorised funds as they would still be subject to CTA 2010 s 614. I can’t find anything in the Bill that repeals the latter provision.

Is this intentional? Or is it intended that authorised funds will also be subject to the same 18% corporate rate in due course?

Thanking you in advance.

Satwaki Chanda

And this is the response I received on 5 August 2015 at about 18:15

Dear Mr Chanda

Thank you for your email. As you note, and as set out in CTA 2010 s 614, the rate of corporation tax in relation to an open-ended investment company is  related to the basic rate of income tax, not the rate of corporation tax.  The government has no plans to change this link.

Kind regards

Ellen [Milner]

Of course this doesn’t answer the question directly. The funds rate will remain linked to the basic rate of income tax – whether this rate will also come down to 18% is another matter. It is unlikely that such a rate change will be made just to satisfy the requirements of retail investment funds.

However, as mentioned in my previous article, these funds don’t pay much tax anyway, given the way that they are structured. Accordingly, the anomaly between the funds rate and the main corporate rate is unlikely to have an unduly adverse impact.

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Satwaki Chanda

Satwaki Chanda

Satwaki Chanda is a tax lawyer with a First Class degree in Mathematics. Called to the Bar in 1992, he is the Editor of Tax Notes.
Satwaki Chanda

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