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HMRC internal manual

Company Taxation Manual

HM Revenue & Customs
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Property authorised investment funds (Property AIFs): introduction and conditions of membership for the regime: intermediate holding vehicles

The definition of Property Rental Business also includes the relevant business of an intermediate holding vehicle (regulation 69H(1) and (2) SI 2006/964 and section 104 FA 2006). The ‘relevant business’ of an intermediate holding vehicle is all that part of the overseas property business of the vehicle which would be within the Property Rental Business if it were directly carried on by the Property AIF.

The full conditions that must be fulfilled by an intermediate holding vehicle can be found at regulation 69I SI 2006/964. The purpose of this regulation is to enable investment in foreign property, in jurisdictions where local restrictions prevent the Property AIF from holding property directly.

An ‘intermediate holding vehicle’ must:

  • be a company, trust or partnership which is not a collective investment scheme,
  • be wholly owned either by the Property AIF parent or by another intermediate holding vehicle, except in as far as local legislation relating to the vehicle requires a proportion of local ownership,
  • have its accounts consolidated with those of the Property AIF,
  • ensure that all its property rental income (or the full proportion of that income representing the interest of the Property AIF) must be reflected in the distribution accounts of the Property AIF at the same time as the income is reflected in its accounts, and
  • have as its sole function to enable the holding by the Property AIF of real property located outside of the UK.

‘Enabling the holding of property’ will include activities ancillary to the Property Rental Business providing that these activities are carried on purely for the purpose of enabling the Property Rental Business to exist, continue or prosper. If any of these activities would fall outside a Schedule A business if carried on in the United Kingdom, then the income from those activities will not be included in the Property Rental Business and so will be part of the non tax-exempt (residual) income of the Property AIF (see CTM48833).