IFM14442 | Taxation of investment trusts: eligibility and approval requirements: approval requirement: the income distribution requirement: overview

For each accounting period, an investment trust must distribute as a dividend the amount of income that is required to satisfy the income distribution requirement (regulation 19 of SI 2011/2999). This prevents the roll-up of income within the company and subsequent conversion of that income into capital gains when shares are disposed of by its investors. This requirement is expressed by reference to the maximum amount that may be retained. In general terms an investment trust must not retain more than 15% of its income for an accounting period (but see IFM14446 for more detailed comment).

An investment trust intending to satisfy the income distribution requirement has to calculate its income, determine the maximum amount that may be retained and hence how much must be distributed, and pay out at least this amount as a dividend.

The distribution must be made as a dividend or interest distribution before the filing date for the accounting period to which the distribution relates. The ‘filing date’ means the latest date by which the company is required to file its corporation tax self-assessment return. If the company amends its return, any further distribution that is required must be made within 180 days of the date of the amendment.