Changes to gross income distributions

From 6 April 2017 HM Revenue & Customs (HMRC) is introducing tax changes that require M&G to remove the amount of tax withheld on income distributions from some of our funds. The following information will explain how these changes could impact your investments. This information is correct as at 6 April 2017.

Do I need to take any action?

The information is to help investors understand these changes and should not be considered tax advice. How these changes may affect you, including any additional tax declarations that you may need to make as a result, will depend on your individual circumstances. For further information, consult your tax advisor or refer to HMRC.

1. What is changing?

From 6 April 2017 interest distributions on UK interest-paying funds (funds that invest more than 60% in fixed income securities) will be paid without deduction of 20% income tax. This follows the introduction of the Personal Savings Allowance (PSA) which came into effect on 6 April 2016.

UK individual taxpayers have a £1,000 PSA before they have to pay any tax on the interest they earn from their savings and investments. The PSA for higher rate taxpayers is £500 and there is no allowance for additional rate taxpayers.

2. When are the changes happening?

The changes are effective from 6 April 2017. All interest distributions from UK interest-paying funds paid on or after 6 April 2017 will be paid without deduction of income tax.

3. How might these changes affect my M&G investments?

If you invest outside of an ISA in one of the M&G funds affected by these changes (see Q4), income received will increase by the amount of UK income tax no longer withheld on interest distributions. However, there is no guarantee there will be an increase as the value of your investments will continue to fluctuate, which will cause fund prices to fall as well as rise.

Please note that the changes do not affect investments in ISA products (ISA and Junior ISA) because interest distributions from these products are already paid without deduction of income tax.

4. Which funds are affected by these changes?

The changes will apply to the Sterling share classes of all M&G fixed income funds and the M&G Property Portfolio. The following table lists the funds affected, their distribution frequency and the date of the first distribution which will be paid gross of tax:


M&G Fund Distribution Frequency First Gross Distribution Date
M&G Absolute Return Bond Fund Semi-Annually 31 May 2017
M&G Corporate Bond Fund Quarterly 31 May 2017
M&G Emerging Markets Bond Fund Semi-Annually 31 August 2017
M&G European Corporate Bond Fund Quarterly 31 May 2017
M&G European High Yield Bond Fund Quarterly 31 May 2017
M&G Gilt & Fixed Interest Income Fund Quarterly  30 April 2017
M&G Global Convertibles Fund Annually  31 March 2018
M&G Global Corporate Bond Fund Quarterly  31 May 2017
M&G Global Floating Rate High Yield Fund Quarterly  30 June 2017
M&G Global Government Bond Fund Semi-Annually  31 August 2017
M&G Global High Yield Bond Fund Monthly  30 April 2017
M&G Global Macro Bond Fund Quarterly  30 June 2017
M&G Index-Linked Bond Fund Semi-Annually  31 July 2017
M&G Optimal Income Fund Semi-Annually  31 May 2017
M&G Property Portfolio Quarterly  31 May 2017
M&G Short Dated Corporate Bond Fund Quarterly  30 April 2017
M&G Strategic Corporate Bond Fund Quarterly  30 April 2017
M&G UK Inflation Linked Corporate Bond Fund Semi-Annually  31 May 2017


5. How is the M&G Property Portfolio affected?

As a UK Property Authorised Investment Fund (PAIF), income from the M&G Property Portfolio is split into three separate streams for UK tax purposes: property income, interest income and other (dividend income).

From 6 April 2017 dividend income and interest income will be paid gross, while property income will remain subject to 20% UK income tax.

6. Are dividend-paying funds affected?

No. Dividend-paying funds are not affected by this change and dividend distributions will continue to be paid gross.

7. How will the changes affect my eligibility to reclaim tax?

As no tax will be withheld on interest distributions after 6 April 2017, there will be no tax to reclaim. However, if you are a basic or higher rate taxpayer you may be able to reclaim any income tax deducted from interest distributions of interest paying funds between 6 April 2016 and 5 April 2017 up to your PSA from HMRC. For further information, consult your tax advisor or refer to HMRC.

8. I already receive gross interest distributions – how will the changes impact me?

All investors will receive interest income gross from 6 April 2017, so investors (such as anyone living outside of the UK) who have already been receiving distributions gross, will continue to do so.

If you invest in the M&G Property Portfolio, all income with the exception of property income will be paid to you without the deduction of income tax (See Q5).

9. I'm invested in Accumulation Shares - how will the changes impact me?

With accumulation shares, any income is automatically reinvested in the fund and reflected in the value of the shares. From 6 April 2017 this income will no longer have tax deducted from it unless it is income received on the property income stream of the M&G Property Portfolio, which will still have 20% income tax deducted on any reinvested income. However, if you are subject to UK income tax you may have further liability to pay tax. For further information, consult your tax advisor or refer to HMRC.

10. I’m invested in Income Shares and reinvest my income – how will the changes impact me?

If you reinvest your income to buy additional shares, from 6 April 2017 this income will no longer have tax deducted from it unless it is income received on the property income stream of the M&G Property Portfolio, which will still have 20% income tax deducted on any reinvested income. However, if you are subject to UK income tax you may have further tax liability. For more information, consult your tax advisor or refer to HMRC.

11. How are we affected if we have a joint holding?

The changes apply equally to single and joint holders. The tax treatment depends on your individual circumstances. For further information, consult your tax advisor or refer to HMRC.

12. How will tax vouchers change?

Tax vouchers showing interest distributions up to 5 April 2017 will show the income tax that has been deducted.

For tax vouchers after this date there will be no reference to tax on your tax voucher. The reverse of the tax voucher reflects these changes to allow you to complete any applicable returns required by HMRC.