Under current legislation, there is no Stamp Duty Land Tax (‘SDLT’) seeding relief available for transferring a portfolio of properties in order to establish a new property fund. This has been particularly problematic for the new authorised fund vehicles such as Property Authorised Investment Funds (‘PAIFs’) and Co-ownership Authorised Contractual Schemes (‘CoACSs’).
The take-up of COACSs as Property Funds is also further hindered by the fact that they are currently transparent for SDLT purposes.
Following the consultation last summer, the government confirmed in the Autumn Statement that it intends to introduce seeding relief for PAIFs and CoACSs to facilitate the role of these authorised fund vehicles. Subject to satisfying a portfolio test, these reliefs will be available for the transfer of an existing portfolio into a new or empty PAIF or CoACS.
There will be targeted anti-avoidance in respect of these reliefs to prevent individuals connected with the fund occupying the properties, as well as a clawback mechanism if the unit holder withdraws from the fund shortly after the transfer. In addition, these reliefs will not be available if there is a tax avoidance motive for the transfer.
The government has also confirmed that it will make changes to the SDLT treatment of CoACSs. This will address their transparent status, so that SDLT will not arise on the CoACS transactions in units. Also the obligation to make SDLT returns will be transferred from the unit holders to the operator.
These seeding reliefs have been welcomed by the Investment Management industry. However, these proposed changes are not likely to be implemented until 2016, which may well mean that there will be limited new take-up of these vehicles in the meantime.
There have also been calls by various industry bodies that such seeding reliefs should be expanded to also include other property vehicles in particular REITs. However the government has not yet indicated that it will include these additional vehicles in proposed legislation.