PROPERTY AUTHORISED INVESTMENT FUNDS TO MOVE ONTO LEVEL TAX PLAYING FIELD WITH REITS

18 July 2007

Commenting on today's Discussion Paper on Property Authorised Investment Funds (PAIFs) from the Treasury, Julie Patterson, Director of Regulation, Operations and Taxation at the Investment Management Association said:

"The Treasury has listened to the industry's concerns about levelling the playing field for the taxation of PAIFs and these proposals are a significant step forward. In particular, they will enable non-tax paying investors, such as pension funds and charities to invest in PAIFs without suffering any tax. We therefore welcome the Government's continued commitment to launching a new tax regime for these funds by April 2008.

The proposals require existing Property Authorised Unit Trusts to convert to OEICs to take advantage of the new regime and the Treasury's commitment to relieve funds of the Stamp Duty Land Tax they would otherwise incur in converting is welcome.

The proposal that funds should ring-fence and distribute different types of income raises some operational questions, but discussions are ongoing about how to minimise the effects of those changes. Most importantly, the Treasury has proposed a solution to address problems associated with the limitation on corporate investors receiving 10% or more of a fund's distributions, which is of particular concern for large life company investors. The Treasury has suggested that large corporate investment could be allowed via an Authorised Unit Trust, leaving corporates able to invest without limit at the appropriate tax rate. We will continue to work closely with the Treasury to ensure that the few remaining questions with the new regime are addressed."

A copy of the Treasury's discussion paper can be found here.

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