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

The taxation treatment is different depending 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 dividend income or franked income isn’t liable to any further tax and can’t be reclaimed. Any franked income is added to other income to determine overall profit and the rate of corporation tax due.

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.