What is the tax treatment of OEICs or unit trusts when owned by a company?

For financial advisers only

The taxation treatment of Open-Ended Investment Companies (OEICS) or unit trusts depends on the mix of the fund.

  • When more than 60% of the fund is invested in cash or fixed interest the fund will be classed as a non-equity fund. This means that any income will be taxed as an interest distribution. 
  • When less than 60% of the fund is invested in cash or fixed interest the fund will be classed as an equity fund. This means that any income will be taxed as a dividend distribution.

Corporation tax on income payments

With non-equity funds, if the fund manager has deducted tax at 20%, this can be reclaimed or offset against the company’s corporation tax liability for the accounting period. If a gross fund has been selected, the tax on the gross interest will be due 9 months and 1 day after the accounting year end.

With equity funds, the limited company isn’t liable to corporation tax on UK dividend income it receives. 

Capital gains and corporation tax

With non-equity funds, realised and unrealised gains are subject to corporation tax on a yearly basis. With equity funds, any capital gains are taxed on disposal. Unrealised gains are not taxed. No annual exemption is available, although a company has the benefit of indexation allowance.