CG73998Y - UK property rich collective investment vehicles: Exemption election: Making the exemption election

The election must be made by the CIV manager ‘to an officer of HMRC’ using the online form.

The online form to make an exemption election for a collective investment vehicle can be found at https://www.gov.uk/guidance/elect-an-offshore-collective-investment-vehicle-for-tax-exemption-on-uk-capital-gains.

The online form to make an exemption election for a qualifying company can be found at https://www.gov.uk/guidance/elect-a-qualifying-company-for-tax-exemption-on-uk-capital-gains.

Further guidance on how to make an election, and the required information, can be found by clicking on the above links.

Timing of election

There is no time limit for making an election, but it is assumed that managers of CIVs will generally want to make an election as soon as possible to gain certainty about the treatment of gains arising to a fund or to an entity in the fund structure.

The election must specify the day from which it is to have effect. The day specified may be earlier than the day on which the election is made, but this will be subject to HMRC consent where this is more than 12 months earlier – further details will be requested within the online form (see links above) when making the election. HMRC will consider cases where the specified day is more than 12 months before the date of the election and will give consent in specific cases where it is satisfied that:

  • There is a reasonable excuse (see CH160000) for the election not having been made within 12 months of the date intended to have effect.
  • The relevant CIV has satisfied all relevant tax filing obligations prior to the election being made (including, for example, notifying HMRC of a disposal and paying any tax due, not withstanding that making the election may result in a repayment of that tax).
  • The delay in making the election is not connected with any avoidance purpose. 

HMRC may also, in future specify in guidance that where particular circumstances apply then consent may be assumed.

In all cases, the conditions under TCGA92/SCH5AAA/para 12(2) or (3) and the qualifying conditions of paragraph 13 must be met from the time that the election is specified to have effect from. For further details of the applicable exemption conditions see CG73998V.

There is an interaction with the requirement in paragraph 14 for an election to be accompanied by a report about disposals made by investors of their interests in the CIV for the two years preceding the date of the election (but only in respect of disposals on or after 6 April 2019); see TCGA92/SCH5AAA/para 50 for further details.  Where an election is made prospectively for a newly formed fund the requirement under paragraph 14 will clearly not apply, although as for all CIVs or companies for which a valid election is made, there will be ongoing reporting requirements under paragraph 15 as explained at CG73999J.

Example

A fund is set up in 2016 and acquires UK land. It makes an exemption election in March 2022 in advance of making any disposals. The election can take effect at any time after March 2021 (and the fund specifies 31 March 2021 in the election). At the time it makes the election, the fund must provide a report detailing disposals made by investors for the period from 31 March 2020 to 30 March 2022. If, however, the fund made the election in December 2019, to take effect from April 2019, it would only need to provide a report of any disposals made by investors for the period investor information from 6 April 2019 to December 2019 (TCGA92/SCH5AAA/para 50).

Commercial restructuring to facilitate an election for exemption

Constitutional or structural changes that are needed to meet the relevant conditions, or to enable an investor to benefit from its own tax exemptions, in particular where all of the ultimate investors are tax-exempt or otherwise qualifying investors, will generally not be caught by the anti-avoidance rules (paragraph 11 of Sch.1A to TCGA; see CG73952) or otherwise be considered to be unacceptable planning. The following examples will specifically be accepted:

  • Changing terms in a prospectus or fund document to clarify the GDO position,
  • Changing distribution provisions to ensure that the fund manager does not trigger a deemed disposal as a result of making a payment to investors that would come within paragraph 21 (payments not otherwise taxable, see CG73999G).
  • Changing distribution rights so that the full benefit of tax exemptions may pass to the tax-exempt investors who effectively enabled such tax exemptions, with underlying tax being allocated to taxable investors.

There may be other examples that would also be acceptable, but each case must be considered on its own merits.