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HMRC internal manual

Company Taxation Manual

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HM Revenue & Customs
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Property authorised investment funds (Property AIFs): process and effects of entry into the Property AIF regime: effects of entry into the Property AIF regime

Cessation of the pre-Property AIF property business

Once an open-ended investment company (OEIC) joins the regime, a line is drawn between the activities of the OEIC before entering the regime and the property investment business of the Property AIF that is carried on afterwards, which is exempt from tax.

Under regulation 69V(1) SI 2006/964 this is done by deeming the pre-Property AIF property business of the OEIC as ceasing immediately before it joins the Property AIF regime for CT purposes. This deemed cessation does not apply to the other activities carried on by the OEIC.

Under regulation 69V(6) SI 2006/964 assets that were involved in the pre-entry property rental business are treated, for capital allowances purposes only, as being sold by the pre-Property AIF business immediately before entry to the regime and reacquired by the tax-exempt Property AIF immediately after entry at a value which does not give rise to any allowances or charges. The assets are transferred at their written down values for capital allowance purposes.

It is not possible to make any election under sections 198 or 199 CAA 2001 (regulation 69V(6)(b).

To see how capital allowances are dealt with for the tax exempt business, and for a worked example, see CTM48832 ‘Calculation of net income for the tax exempt property investment business’.

The deemed disposal and reacquisition for capital allowances does NOT apply for the purposes of tax in respect of chargeable gains (regulation 69V(5) SI 2006/964).

When an OEIC joins the regime, the OEIC must commence a new accounting period and distribution period on entry.

Once the Property AIF regime applies to the OEIC it shall remain in the regime indefinitely unless certain events occur (see CTM48871). There is, therefore, no need for the Property AIF to give further notices for future accounting periods.

Accounting periods

When an OEIC joins the regime, the accounting period of the OEIC comes to an end. (The meaning of accounting period is covered in CTM01400 ‘Accounting periods’.) This is the final accounting period for the pre-entry property business. A new accounting period starts on the first day the regime applies to the OEIC. Under regulation 69V(3) SI 2006/964, this is the first accounting period for which the Property AIF regime applies to the OEIC for the tax exempt business and other activities of the business.