AIFs—tax elected funds
Produced in partnership with Martin Shah of Simmons & Simmons LLP
AIFs—tax elected funds

The following Tax guidance note Produced in partnership with Martin Shah of Simmons & Simmons LLP provides comprehensive and up to date legal information covering:

  • AIFs—tax elected funds
  • What are the TEF qualifying conditions?
  • Application to be a TEF
  • Contents of application
  • Form and timing of application
  • HMRC responses to applications
  • Refusal of application—appeals
  • Effect of being a TEF
  • Distributions by a TEF—treatment of the TEF and participants
  • Breaches of the TEF conditions
  • more

A tax elected fund (TEF) is an authorised investment fund (AIF) that meets certain conditions and whose application to be treated as a TEF is accepted by HMRC.

For more detail on the general rules that apply to the taxation of AIFs, see Practice Note: AIFs—taxation of the scheme.

Other aspects of the AIF regime are covered in our Practice Notes:

  1. AIFs—genuine diversity of ownership

  2. AIFs—taxation of corporate participants, and

  3. AIFs—taxation of individual participants

For more on the types of collective investment schemes (CIS), (authorised unit trusts (AUT) and open-ended investment companies (OEIC) in particular) that can benefit from the special tax AIF regime, see Practice Note: Authorised investment funds—defined.

References in this Practice Note to the AIF Regulations are to the Authorised Investment Funds (Tax) Regulations 2006 (SI 2006/964), as amended.

What are the TEF qualifying conditions?

To be a TEF, an AIF must meet four conditions (referred to as the 'TEF conditions') in respect of an accounting period:

  1. the property condition—broadly that the AIF does not have a UK property business or an overseas property business

  2. the genuine diversity of ownership condition—ie the AIF is ‘genuinely diversely owned’ (GDO)

  3. the loan creditor condition—broadly three sub-conditions (Conditions A, B, C) that require that any loan relationships to which the AIF is party as a debtor do not provide for an excessive return or