Property authorised investment funds (PAIFs)—summary
Produced in partnership with Martin Shah of Simmons & Simmons and Charles Goddard of Rosetta Tax

The following Tax practice note produced in partnership with Martin Shah of Simmons & Simmons and Charles Goddard of Rosetta Tax provides comprehensive and up to date legal information covering:

  • Property authorised investment funds (PAIFs)—summary
  • Definition of a PAIF
  • The PAIF conditions
  • Entry into the regime
  • Tax treatment of the PAIF
  • Tax treatment of participants
  • Property income distributions
  • PAIF distributions (interest)
  • PAIF distributions (dividends)
  • Withholding tax compliance

Property authorised investment funds (PAIFs)—summary

The regime for property authorised investment funds (PAIFs) was introduced in 2008.

It created a tax beneficial regime for open-ended authorised investment funds, investing in real estate, intended to complement and which is broadly equivalent to, that applying to, closed-ended, real estate investment trusts (REITs).

For an introduction to authorised investment funds generally, see Practice Note: Authorised investment funds—defined and for an introduction to the REIT regime, see Practice Note: Real estate investment trusts—summary.

According to HM Revenue and Customs (HMRC),

‘the intention of the PAIF regime is to tax investors in a similar way to those that invest directly in the underlying assets and to remove tax barriers in the way of collective investment in rental property’.

In an open-ended fund, an investor is entitled to sell (and the manager of the fund is obliged to repurchase) its interest at any time. The effect is intended to be equivalent to a disposal of a proportionate part of the fund's property equal to the participant's interest in the fund.

The capital structure of the fund is, therefore, generally variable. It expands and contracts as participants join and level the fund—ie 'open-ended'. A normal company will be closed-ended because it has fixed share capital.

Despite the tax-efficient characteristics of the specialist regime, it took some time after the introduction of the regime for significant numbers of PAIFs to

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