The UK government has announced that it will be looking at whether any changes are needed to current stamp duty land tax ("SDLT") rules to cater for two specific forms of collective investment scheme designed for investors in the UK market.
HMRC estimates that there is currently £60 billion of real estate in various forms of collective investment schemes, including schemes that are domiciled offshore. The real estate is largely commercial, rather than residential, and is held in a wide variety of vehicles. In addition, insurance companies and pension funds are thought to hold as much as £78 billion of UK real estate, again large commercial in nature.
In response to the demand for tax-efficient investment vehicles, the UK government has created two specific fund structures. Property authorized investment funds ("PAIFs") are open ended investment companies that are authorized by the UK's Financial Conduct Authority and that can invest in real estate directly or indirectly though shares in UK real estate investment trusts and similar offshore entities. Authorized contractual schemes were introduced in 2013, and the first such scheme has recently been launched in the market.
HMRC is consulting on the introduction of a seeding relief from SDLT for PAIFs under which the initial transfer of real estate to a PAIF would be exempted from SDLT. A previous similar relief for unauthorized unit trusts was withdrawn in 2006 because it was used as an avoidance mechanism, and HMRC is therefore careful to stress that the relief will be properly targeted.
Authorized contractual schemes are fully transparent and a transfer of an interest in such a scheme is treated in the same way as a transfer of the real estate itself. The government is consulting on the introduction of a relief for transfers of interest in these schemes (including a relief for the initial issue of units). In order to prevent avoidance, a specific charge would be introduced on acquisitions of real estate from connected parties.