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Cathryn Vanderspar , a tax partner at Berwin Leighton Paisner LLP, examines the government's case for making changes to the stamp duty land tax (SDLT) rules for property authorised investment funds and co-ownership authorised contractual schemes and the potential design of those changes proposed in the consultation on SDLT rules for property investment funds.
The design features, including anti-avoidance measures, are the focus of this consultation, with the deadline for responses being 12 September 2014. The consultation addresses SDLT issues with two types of funds.
The problem identified with PAIFs is that the existing seeding relief revolves around the transferor vehicle being an authorised unit trust scheme. It does not apply to the seeding of PAIFs with assets from other structures, such as life insurance companies and pension funds, which managers would like to collectivise and modernise. Without an express relief, there could, therefore, on seeding, be a charge to SDLT in the fund on the value of the entire portfolio, even if there is no change of ultimate beneficial ownership. This means that seeding using the PAIF in these circumstances is economically unviable.
The issue with CoACSs is that the government has not previously expressed any opinion at all on how it should be treated for SDLT. This has created uncertainty, but as a form of co-ownership, strictly, there could be SDLT charges at investor level each time there is a change of ownership in the fund. This is clearly commercially unattractive for investors compared to alternative structures.
For the funds industry, a further issue is, however, that the government has not yet decided whether a sufficient case has been made for introducing the further SDLT reliefs contemplated in the document. The consultation, therefore, seeks more quantitative data on the need for change, as well as putting forward technical proposals for consultation. This continues uncertainty and timing issues.
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