Amendments to rules on ‘UK property rich’ collective investment vehicles

HMRC is consulting on draft amendments to legislation about the taxation of UK property rich collective investment vehicles and their investors, which are designed to ensure the new rules work as intended

Schedule 1 to Finance Act 2019 introduced new provisions extending taxation of gains accruing to non-UK residents to include gains on disposals of interests in non-residential UK property.

It also extended taxation of gains on residential property to include disposals made by widely held companies, by certain investment funds and life assurance companies. The new rules apply to disposals made on or after 6 April 2019.

These regulations amend part of those rules specifically concerning ‘UK property rich’ collective investment vehicles (CIVs) and their investors.

The proposed amendments follow representations made by stakeholders after the rules were introduced. The changes ensure the legislation will work as had been intended.

In particular, the changes mean that investors who are exempt from tax on capital gains can benefit from that exemption when investing in these vehicles. They also remove unintended technical barriers to eligible CIVs making elections for transparency or exemption.

If these amendments were not made, the default position under existing legislation would adversely affect exempt investors such as pension funds were they to invest in a CIV that in turn suffered tax on disposal of interests in UK land. Non-exempt investors could also be caught by effective double taxation when disposing of an interest in such a vehicle.

Broadly, the effect of the transparency election is to treat the CIV as a partnership for the purposes of capital gains, thereby ensuring that the investors are (where they are within the charge to tax) taxed on disposals of interests in the underlying assets of the partnership. An investor who is exempt from capital gains would therefore be able to directly engage that exemption on such a disposal. This election is only available to CIVs that are already transparent for income purposes.

The consultation closes on 25 October 2019.

Draft regulations: The UK Property Rich Collective Investment Vehicles (Amendment of the Taxation of Chargeable Gains Act 1992) Regulations 2019

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