NO WITHHOLDING TAX ON PAYMENTS TO UNIT TRUSTS AND OPEN-ENDED INVESTMENT COMPANIES
Summary of measures
The Budget announced the proposed abolition from April 2001 of the withholding tax under the Paying and Collecting Agents rules.
Following consultations with the Association of Unit Trusts and Investment Funds the Government has decided that in the light of this proposal, it will no longer require payments to UK unit trusts and open-ended investment companies to be brought within these rules from 1 April 2000, as previously announced on 3 August 1999.
1. The Budget Note “Withholding tax on international bond interest abolished” (REVBN2J) announced a package of measures which will help promote the UK as a competitive environment for business. The package includes the abolition of 40 pages of complex legislation which require financial institutions which act as Paying and Collecting Agents to withhold tax on payments on international bonds and foreign dividends. Tax which is withheld is set against the investor’s own tax liability on these payments.
2. Payments by Collecting Agents to UK unit trusts and open-ended investment companies are liable to the withholding tax. But the implementation of the tax to these payments was delayed to enable these bodies to make the necessary preparations. Implementation was due to take place on 1 April 2000 and this was announced in a Press Release on 3 August 1999. Following consultations with the Association of Unit Trusts and Investment Funds, the Government has decided against making payments to UK unit trusts and open-ended investment companies subject to this withholding tax for the one year before the tax is abolished. Any tax that is deducted by collecting agents before they can take account of this change will be repayable by them to the bodies concerned.
3. The effect of the change will be a one-off reduction in tax yield which is estimated to be about #m20 in 2000/01. The change will not affect the amount of tax which is ultimately payable, only the timing of its payment.
NOTES FOR EDITORS
1. A new scheme for accounting for tax on foreign dividends and quoted UK Eurobond interest by UK paying and collecting agents was introduced in Schedule 29 to the Finance Act 1996.
2. Regulations completing the scheme came into force on 31 July 1996 and 9 December 1997. The scheme applies to about 600 financial institutions. Currently, they are required to withhold and account for tax on payments to UK residents, and to obtain and keep for inspection various types of declaration from non-UK residents and others entitled to receive payments without deduction of tax.
3. This scheme will now be abolished from 1 April 2001 and replaced by simpler and less burdensome requirements to provide information to the Inland Revenue. This is part of a package of measures which will help promote the UK as a competitive environment for business.
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