Charity Pooled Funds Consultation - Mazars - United Kingdom
Charity Pooled Funds Consultation
The Government has put forward a new consultation document regarding the creation of a new type of authorised investment fund (“AIF”) authorised by the FSA but open only to charities. Comments are invited until 31 October 2009.
There are already investment funds open only to charities and benefiting from tax exemptions. However, they are not authorised by the FSA, but by the Charity Commission, although the manager and trustee of a Common Investment Fund (“CIF”) must be authorised by the FSA and as a matter of policy, so should the manager and trustee of a Common Deposit Fund (“CDF”).
In this article, we refer to the proposed new category as a CAIF.
From a regulatory perspective, the proposal involves the following:-
- A CAIF would itself have to meet the same conditions as ordinary AIFs, although no decision has yet been taken as to whether these conditions would be at UCITS, NURS or QIS level, and this in itself is a matter for consultation, obviously depending on perceptions of the investment risk profile of charities and how current CIFs and CDFs currently match that profile.
- Unlike a CIF or CDF, a CAIF would not be regulated as a charity.
- Consideration may be given to not requiring a CAIF to distribute all its income.
The tax treatment of a CAIF is intended to be as follows:-
- It would be similar to that of a Tax Elected Fund on the direct tax front, in so far as it will in theory be taxable at 20% like any other AIF, but because “taxable income” distributed to charities will be deductible like interest in a TEF, in practice no such tax charge will arise. The interest will be payable gross. If the charity itself does not use the income for charitable purposes, it can lose its exemption at that level, not at the level of the CAIF.
- It will benefit from the same VAT exemption on management fees as other AIFs, which will be improvement on current CIFs and CDFs which currently have to suffer VAT on those fees.
- It will be exempt from Stamp Duty Land Tax and Stamp Duty Reserve Tax in the same way as a CIF or CDF
Depending on the detail of the legislation, the above combination means that a CAIF could be a popular vehicle for fund managers alongside their mainstream investor offerings and would be the better option for property than, UK equity and balanced fund investment aimed at charities.
We will take part in the consultation and would be pleased to discuss the proposal with interested parties. The consultation document may be found here.
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