Following representations from the fund industry, some amendments have been made to the capital gains rules (TCGA SCh5AAA) concerning disposals of UK property by collective investment schemes (CIVs) and their investors.
There is now an opportunity for those non-UK CIVs that were property rich at 6 April 2019, and did not make a transparency election, to reconsider their position. The election deadline has been extended.
In summary, TCGA SCh5AAA applies the Non Resident Capital Gains Tax (NRCGT) rules from 6 April 2019 to offshore CIVs. They also disapply the 25% holding test for application of NRCGT to an interest in a CIV, so that NRCGT can be relevant for any size of holding. The provisions permit an exemption election to be made by offshore CIVs owned by investors meeting certain conditions. They also permit a transparency election to be made provided certain conditions are met, so that a non-partnership CIV can be treated as a partnership.
The transparency election needs to be made within 12 months of the date of the acquisition of the relevant interest in UK land or property rich vehicle. Transitional rules provided that elections for property rich CIVs that already existed at 6 April 2019 had to be made by 6 April 2020.
Under the provisions, many offshore CIVs may be treated as corporate vehicles with share capital. However, HMRC guidance points out that this does not mean the deemed share capital is ordinary share capital. This means that the presence of an offshore CIV in a group structure can cause difficulties for corporate capital gains purposes, as it may not be within a corporate capital gains group.
The legislation was updated in April 2020 by SI 2020/315 so that the rules operate as intended, following discussions with the industry. Some of these amendments are treated as always having had effect, and some from 19 April 2020. With respect to the transparency election for offshore CIVs that were already property rich at 6 April 2019, the deadline for making a transparency election has been extended to the later of 1 October 2020 or 12 months after the acquisition of the interest in UK land or property rich vehicle.
In the light of these amendments, managers or owners of offshore CIVs who have not already made the transparency election, should be considering whether making the election before the revised deadline is appropriate.
For a further discussion of the relevance of these developments to non-UK CIVs, please submit the following form and a member of our Real Estate team will be in touch.