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Autumn Statement 2015
Tax Transparent Funds and Property Authorised Investment Funds
c) A clawback mechanism will apply to recover the SDLT relieved where either:
1). The fund ceases to qualify as an authorised PAIF or CoACS, or
2). The portfolio test is not met at any time within 3 years of the end of the seeding period, or
3). Some or all of the units received in consideration for the initial seeding are disposed of within 3 years of the end of the seeding period. A 'first in last out' principle will apply here in order to identify the seeded units, or
4). A seeded residential property is occupied by a person connected with the fund
5). Where relief is recovered from a PAIF, the fund itself will be wholly liable for the SDLT due on clawback and will be required to make a return of the tax due. Where SDLT is recovered from a CoACS, the scheme operator will be liable.
The Government will be publishing draft legislation on these changes on 9 December 2015, alongside a Tax Impact and Information Note. Consultation on this draft legislation will be open until Friday 3 February 2016.
In our newsletters, we have been covering uncertainties regarding the Stamp Duty Land Tax (SDLT) rules relating to Tax Transparent Funds. These relate to the SDLT treatment of funds in the form of Co-ownership Authorised Contractual Schemes (CoACS). As previously trailed the government announced that CoACS will be treated as SDLT opaque and that a seeding relief for contribution of assets to CoACS and PAIFs will be introduced. This is broadly in line with the previous consultation from July 2014, which can be found here.
The key features of the seeding relief are as follows:
a) A defined seeding period will be introduced, within which seeding transactions are eligible for relief. The seeding period will begin upon the initial transfer of property into the portfolio and end either with the first third-party investment or after 18 months. This will allow property to be seeded in multiple tranches, in recognition of the difficulties associated with seeding a large property portfolio in one go.
b) A portfolio test will be introduced, set at a minimum value of £100m and 10 non-residential properties, or £100m and 100 residential properties. In the case of funds with a mix of residential and non-residential property, a percentage test will apply. This means that if the total value of residential property seeded is less than or equal to 10% then the non-residential requirements must be met. If the total value of residential property seeded is greater than 10% it is the residential requirements that must be met. This means that where a predominantly non-residential fund has a 'residual' amount of residential property, it is still the non-residential requirements that need to be met.