Finance Bill 2014 has now been published and can be found following this link:
The new legislation amending CTA 2009 465 and 490 re collective investments treated as loan relationships (see previous posts of 22 January, 4th Feb and 20th February on this topic) is at section 27 of the Finance Bill.
As far as I can see the defect identified in my post of 22 January has not been corrected in the published legislation.
That is where a distribution is made by a collective that is treated as a loan relationship all of the distribution is within the loan relationship legislation. This is the case regardless of whether the collective is an AIF or an offshore fund. This approach gives the wrong result where a collective that is treated as a loan relationship also has an element of equity investment because all of the dividend (or interest distribution) from the AIF will be taxed as loan relationship whereas some of the income giving rise to the dividend is exempt dividends.
The problem becomes exacerbated when a UK AIF that is treated as a loan relationship cannot (or chooses not to) pay a interest distribution, as now the interest income arising to the fund might be subject to double taxation, once in the AIF and again in the hands of the corporate investor. Streaming the dividend into FII and UFII rather than taxing it as a loan relationship will, pretty much, sort out this problem and also ensures exemption for the dividend element of the return. Streaming will also also ensure the correct result for pension business of insurance companies as the streaming will allow the tax in the collective to be recovered in the insurance company.
So it seems to me that revising the Finance Bill to ensure that streaming still apply to AIF non - interest dividends where the AIF is treated as a loan relationship would be a definite improvement on what we have at present. Of course this is dependent on streaming being retained for life companies but I understand that there are some encouraging signs here.
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