Autumn Statement 2016: Authorised Contractual Schemes

UK based authorised contractual schemes were introduced by the Government in 2013 to create an onshore tax transparent vehicle for collective investment schemes and funds generally.  These schemes can take two legal forms; either a partnership, or a co-ownership formed under contract, and are often referred to collectively as “CoACs”.

There have been a number of areas of uncertainty regarding how these funds should work from a tax perspective.  Accordingly, in August 2016, HMRC issued a consultation to address these concerns and made a number of proposals including the introduction of legislation to:

  • clarify for capital allowance purposes, what the qualifying activity for investors in such vehicles is and what their interest in the land is;
  • introducing legislation permitting the operator of the fund to compute the capital allowances;
  • require operators to provide each investor with sufficient information to meet their UK tax obligations. The proposal was that information required would be modelled based on the existing rules for transparent offshore reporting funds (Regulation 92D of the Offshore Funds (Tax) Regulations 2009 S12009/3001);
  • require the CoACs to provide HMRC with some form of tax or information return so that they can ensure the right amount of tax is paid by the investors. Currently there is no specific requirement on a contractual CoAC to submit a tax return as it is not itself liable to tax. A partnership CoAC is also not currently subject to any specific tax rules requiring them to provide certain information to investors so that those investors can correctly determine their own tax position.

In the Autumn Statement, the Government confirmed that it will publish legislation to clarify the rules on capital allowances, chargeable gains and investments as well as the reporting requirements including under the Offshore Funds regime for such schemes.

To date, CoACs have only been targeted at the Institutional market and therefore the impact will be restricted to this part of the market.  With further clarity on their tax position, it will be interesting to see if CoACs are then able to be marketed more widely to the retail market.