The Association of Real Estate Funds is expecting a wave of new tax efficient property funds following changes introduced this week.
AREF said previously underused property authorised investment funds and co-owned authorised contractual schemes would come into their own in coming months as transfer taxes were eliminated.
AREF believes that these changes, announced in last month’s Budget, will prompt institutions to see the funds as an efficient means of investing in property without the risks of investing in property companies listed in the turbulent stock market.
Before the latest Budget, seeding funds such as the open- ended PAIFs incurred stamp duty on every property transferred. The scrapping of the duty makes the vehicles cheaper to create and more appealing to institutional and retail investors.
Eliminating stamp duty has also been welcomed by the British Property Federation.
Ion Fletcher, director of policy (finance) at the BPF, said: “We have lobbied for seeding relief for PAIFs for a long time, on the basis that it will attract further capital into UK real estate by creating a new breed of fund that is attractive to overseas investors.
“The relief could bring several billion pounds worth of property that was previously held offshore into UK structures.”
PAIFs, introduced in 2008, are similar in structure to REITs but require a distribution of 100% of their income. They also attract capital gains charges that apply only at the sale of shares in the fund. However, by the end of 2013 just seven PAIFs had been launched despite earlier changes to make the funds more attractive to institutions.
The CoACS structure, which in addition to being tax exempt as a fund is exempt of withholding tax for overseas investors, is also now more efficient for institutional investors and is likely to be treated in a similar way to Luxembourg listed funds.
