Office of Public Sector Information

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations amend the Authorised Investment Funds (Tax) Regulations (S.I. 2006/964) (“the principal Regulations”). The primary purpose of these Regulations is to insert a new Part 4A, dealing with property authorised investment funds (“Property AIFs”) into the principal Regulations.

Regulation 1 of these Regulations deals with citation and commencement, and regulation 2 provides for the principal Regulations to be amended. Regulations 3 and 4 make amendments to regulations 2 and 12 of the principal Regulations respectively.

Regulation 5 inserts the new Part 4A into the principal Regulations. Part 4A comprises regulations 69A to 69Z41 of the principal Regulations; and the new Part is divided into seven Chapters.

Chapter 1 of Part 4A contains preliminary provisions. Regulation 69A is of an introductory nature; regulation 69B sets out the structure of Part 4A; and regulation 69C defines a number of key concepts.

Chapter 2 of Part 4A is concerned with entry into the Property AIF regime. Regulation 69D specifies the conditions which an open-ended investment company must meet in order for Part 4A to apply to it in respect of an accounting period. The conditions are the property investment business condition (dealt with in regulations 69E to 69I); the genuine diversity of ownership condition (dealt with in regulation 69J); the corporate ownership condition (dealt with in regulations 69K and 69L); the loan creditor condition (dealt with in regulation 69M); the balance of business conditions (dealt with in regulation 69N); and the notification condition (dealt with in regulation 69O to 69Q). Regulations 69R to 69T deal with procedural matters arising in connection with the giving of a notice for Part 4A to apply; and regulation 69U deals with clearance applications. Regulations 69V and 69W are concerned with the consequences of entry into the Property AIF regime.

Chapter 3 of Part 4A is concerned with the tax treatment of Property AIFs. Regulation 69X provides for the ring-fencing of the property investment business carried on by a Property AIF to which Part 4A applies; and regulation 69Y provides that the net income from property investment business carried on by a Property AIF to which Part 4A applies shall not be charged to corporation tax. Regulations 69Z and 69Z1 are concerned with the meaning and calculation of that net income. Regulations 69Z2 and 69Z3 are concerned with the amounts chargeable to tax in respect of the other business carried on by a Property AIF to which Part 4A applies. Regulations 69Z4 to 69Z8 deal with the consequences where conditions for membership of the Property AIF regime are breached. Regulations 69Z9 to 69Z13 contain further provisions. Regulation 69Z9 imposes a charge to tax, in certain circumstances, upon a qualified investor scheme. Regulation 69Z10 permits the Commissioners for Her Majesty’s Revenue and Customs to give a notice to a Property AIF to counteract a tax advantage; the Property AIF may appeal against that notice (regulation 69Z11). Regulation 69Z12 imposes a charge to tax if a distribution is made to a “holder of excessive rights”: an expression defined in regulation 69Z13.

Chapter 4 of Part 4A is concerned with distributions made by Property AIFs. Regulation 69Z14 provides for the total amount shown in the distribution accounts of a Property AIF to be attributed in three different ways; and regulations 69Z15 to 69Z17 are concerned with the tax implications of the three different attributions.

Chapter 5 of Part 4A is concerned with the treatment of participants in Property AIFs. Regulations 69Z18 to 69Z21 are concerned with the tax liability of participants, and regulations 69Z22 to 69Z24 with the deduction of tax from distributions.

Chapter 6 of Part 4A is concerned with compliance. Regulations 69Z25 to 69Z28 deal with the action to be taken by a Property AIF in various circumstances; and regulations 69Z29 to 69Z35 are concerned with the duty of the Property AIF to account for tax deducted from property income distributions.

Chapter 7 of Part 4A is concerned with leaving the Property AIF regime. Regulations 69Z36 to 69Z40 provide for Part 4A to cease to apply to a company in various different circumstances; and regulation 69Z41 is concerned with the effects of cessation.

Regulations 6 and 7 make amendments to Parts 1 and 2 of the Schedule to the principal Regulations respectively.

An impact assessment of the effect that this instrument will have on the costs of business and the voluntary sector is available and accompanies the Explanatory Memorandum which is available alongside this instrument on the OPSI website.