IR9

9 March 1999

FAIRER TREATMENT FOR COURT COMMON INVESTMENT FUNDS

A change to the tax treatment of court common investment funds
announced by the Chancellor today will protect a small group of
people (for example, children who have been the victims of road
accidents) whose investments are under the control of the Courts in
England and Wales.

The change ensures that UK dividend income received by a court common
investment fund does not incur an extra tax charge in the fund before
being paid to investors. It will put this group of investors in the
same position for tax purposes as other individuals who invest in
shares, authorised unit trusts or open-ended investment companies and
receive their income as dividends.

The change will take effect from 6 April 1999.

DETAILS

1. From 6 April 1999 court common investment funds (CCIFs) will be
treated for tax purposes as if they were authorised unit trusts
(AUTs). The tax rules which apply to the income of authorised unit
trusts and open-ended investment companies (OEICs) will apply to
CCIFs. This means CCIFs will become chargeable to corporation tax,
not income tax, on their income. It follows that UK dividends
received by CCIFs will not be chargeable to tax, which is the same
position as for UK companies, AUTs and OEICs.

2. Investors in CCIFs will receive their income as a dividend with a
non- payable tax credit. Those investors whose income is within the
lower or basic rate bands will be liable to tax at 10 per cent on
their dividend income in the normal way. This means that the tax
credit will satisfy their tax liability on UK dividends and no
further tax is payable. Investors whose income is within the higher
rate tax band can set the credit against their tax liability on
dividends. The result is that investors in CCIFs are in the same
position for tax purposes as other individuals who receive UK
dividends.

NOTES FOR EDITORS

1. Court common investment funds are a form of unit trust set up by
the Lord Chancellor under Section 42(1) Administration of Justice Act
1982. They exist as vehicles into which funds in court (for, say,
children who have been the victims of road accidents) may be placed.
The Public Trustee as Accountant General of the Supreme Court holds
all units in the funds on behalf of investors.

2. As CCIFs are not authorised by the Financial Services Authority,
they are treated for tax purposes as 'unauthorised' unit trusts
(UUTs). This means that, under existing law, the income of a CCIF,
including UK dividends, is taxed at the basic rate of income tax (23
per cent). Investors receive their income as annual payments after
deduction of income tax at the basic rate and not as dividends.

3. Without the change the income received by investors in CCIFs would
from 6 April 1999 be substantially reduced as compared with
individuals investing directly in shares or AUTs or OEICs. The change
puts them all in the same position.

Revenue effects

4. The proposal is a minor change to the tax treatment of CCIFs with
negligible costs. 

INLAND REVENUE PRESS OFFICE
Media enquiries to:           0171 438 6692/6706/7327
(Out of hours: 0860 359544)
Non-media enquiries to:       0171 438 6420/6425
(Office hours only)
Inland Revenue information is on the Internet:
www.inlandrevenue.gov.uk

# = pounds sterling