As clients will be aware, the UK government has announced that, from 6 April 2017, no tax will be deducted from any interest distributions made by authorised investment funds (or by investment trust companies). The legislation will be in the Finance Bill 2017 but will be effective from 6 April 2017.

(Tax has not been deducted from dividend distributions (or dividends) for many years and there is no longer any notional tax credit attached to them.)

UK authorised investment funds (OEICs and AUTs)

Consequently, there will be no distinction between gross classes and net classes (except in the case of Property Authorised Investment Funds - PAIFs).

Fund managers and administrators should therefore now be taking action on or considering these points:

  1. Net pricing will need to be changed to gross pricing. This should ideally be done from the start of the first distribution period for which distributions will be made on or after 6 April 2017.
  2. Net and gross share classes may effectively be amalgamated (through conversions) where the relevant share classes are otherwise the same. Funds may need to take on the power to do this, after FCA approval, but this process can be effected at the most appropriate time, including after April 2017, to tie in with other changes or investor communications.
  3. From April 2017, references to net and gross share classes in prospectuses and other documents should be removed. All distributions (both dividends and interest) will be paid without the deduction of any tax and without any tax credits being attached. If any tax is due the investor should pay it directly to HMRC.
  4. Similarly it will be appropriate to change the names of classes where the current names distinguish between net and gross shares. FCA approval will be required in most cases.
  5. The tax vouchers to be used from 6 April 2017 will need to reflect the gross payment of interest distributions.
  6. Investors will need to be notified appropriately.

PAIFs

Tax will continue to be deducted from property income distributions (PIDs) made by PAIFs so PAIFs’ share classes will continue to be either net or gross.

PAIF distributions (interest) will be paid gross to all investors with effect from 6 April 2017.

Offshore funds marketing to UK-resident investors

If this has not already been done, then references in UK tax information to tax credits attached to dividends should be removed (tax credits on dividends were abolished from 6 April 2016) and the tax information updated to reflect the new dividend and interest tax legislation.