Property authorised investment funds — where are we going?

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In 2008, the government introduced tax breaks for UK property funds. It has taken five years for the industry to start responding. Now we are seeing authorised investment funds being launched as property authorised investment funds (PAIFs). Why the delay? Market conditions have played a large part in the lack of action. However, there are still practical and tax issues to be resolved. Combining the flexible regulations of qualified investor schemes (QISs) and tax efficiency may give business opportunities to fund managers to offer new vehicles to the market.

Before a fund can become a PAIF it must be authorised. The real estate authorised fund market is relatively small in the UK, at about £8.5bn.

Authorised funds are of two legal types:

  • an open-ended investment company (OEIC), where the investor holds shares in a company; or
  • a unit trust, where the investor holds units in a trust.

Until 2007 all authorised funds investing in real estate were established as unit trusts. This was driven by the familiarity of unit trusts in the real estate sector. Now a few have emerged in OEIC form. In order to qualify as a PAIF, an authorised fund must be an OEIC. This will be a change that fund managers must take on board…

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