On 9 December 2015, the ECJ8 held that the management of a Dutch real estate fund fell within the VAT exemption for the management of special investment funds, provided the fund was subject to regulatory supervision in its country of incorporation.

The VAT exemption relates to management of the fund itself (capital raising, buying and selling of the assets), as opposed to the day-to-day management of the properties within the fund (including letting, managing existing tenancies, and delegating and monitoring maintenance, ie “asset management”). VAT in respect of asset management will remain irrecoverable – and therefore a real cost unless it can be passed on – for residential property funds.

The UK already applies this exemption to authorised funds, namely authorised unit trusts and OEICs and so regulated property funds such as PAIFs and REITs are exempt from VAT on management fees.

Unregulated property funds, such as limited partnerships continue not to be within the exemption, and so are charged VAT on their management fees.

The decision can be found here.