Detail of outcome
The government would like to thank those who took the time to respond to the public consultation on Stamp Duty Land Tax: rules for property investment funds, held between 18 July 2014 and 12 September 2014. The government received a total 24 written responses from stakeholders such as asset management and property firms, industry associations and tax advisors.
The initial proposals in the consultation were: the introduction of a seeding relief for property authorised investment funds (PAIFs) and co-ownership authorised contractual schemes (CoACSs) and changes to the Stamp Duty Land Tax (SDLT) treatment of CoACSs investing in property so that SDLT does not arise on the transactions in units. A number of safeguards were also suggested.
There was general support for the proposals to make changes to the SDLT rules for PAIFs and CoACSs.
However, opinion was divided on certain technical aspects of the proposals. For example, some respondents had concerns over the seeding relief’s claw-back mechanism with some calling for: a reduced claw-back period, a de minimis threshold or no claw-back mechanism at all.
Some respondents also advised on changes to the suggested ‘portfolio test’ for the seeding relief. Some stated that it should be set at the same level as for existing PAIFs and Real Estate Investment Trusts (REITs) whilst others felt that a minimum number was preferable to a minimum value, and others believed that a minimum requirement was unnecessary.
The consultation also sought views on the case for making changes. There was widespread agreement that these changes would lead to the growth of UK-based fund management, with a number of respondents suggesting they would move the management and/or domicile or their funds into the UK as a result of these changes. Some warned that the UK risked losing ground to other jurisdictions if changes were not made, but these changes would make the UK more competitive. A number also suggested that there would be a wider benefit to the economy as a result of these changes.
Having analysed the responses to the consultation and assessed the impact of these changes on the industry, the wider economy and the Exchequer, the government intends to change the SDLT rules for property investment funds, subject to the resolution of potential avoidance issues. The government is committed to delivering on the UK Investment Management Strategy, announced at Budget 2013, to encourage the growth of fund management and domicile in the UK and believes these changes will help achieve those objectives.
The government is keen to ensure that any changes are carefully designed so that it meets its policy objectives without creating the opportunity for tax avoidance. The government will work further with stakeholders on the exact design in order to ensure that these changes are not used in undesirable or unintended ways.
Subject to the resolution of potential avoidance issues, the government intends to change the SDLT rules for property investment funds in Finance Bill 2016.
This consultation seeks views to help the government assess the case for making changes to the SDLT treatment of the seeding of property authorised investment funds and the wider SDLT treatment of co-ownership authorised contractual schemes. It asks questions to better understand the property funds industry, the need for change, the likely response from the industry and the wider impact of the proposed changes. This consultation also sets out proposals for how these changes could be implemented, if the decision is taken to introduce them, and seeks views on their potential design.