The property industry is unlikely to take advantage of new Financial Services Authority (FSA) rules on collective investment vehicles until at least next year, when the tax treatment of private funds is settled alongside that of a UK REIT or property investment fund (PIF).
Recently, the FSA launched its new collective investment sourcebook, based on the CP185 consultation document.
The new class of authorised funds for investors with £25,000 or more to invest could eventually replace limited partnerships as the “vehicle of choice” for property investors.
No rules have been set for creating them, but each application will be viewed on its merits by the FSA.
Chris Laxton, chairman of the Association of Property Unit Trusts and head of external property funds at Morley, said: “You could take this as being not enough guidance, but it gives you a lot of freedom.”
However, he said fund managers would almost certainly not launch any new funds under the new FSA rules until their tax treatment was clarified.
Laxton said: “The tax treatment of CP185 funds is being linked to that of PIFs, which will come into play in 2005 at the earliest. We hope the revenue will decide to make them tax-exempt in the same way PIFs will be.”
There are also new rules for funds aimed at retail investors. These will allow authorised property unit trusts to hold 100% property assets and defer redemptions for six months – thus allowing them time to sell assets if necessary to redeem the interests of unitholders who wish to leave the fund.
Gearing is restricted to 100% of gross asset value and up to 50% of the fund can be in development.
Berwin Leighton head of property David Ryland said: “If the government implements PIFs as listed, internally managed vehicles, as seems likely, then CP185 funds will be complementary to them.”
References: EGi News 05/04/04
