IFM04260 - Property authorised investment funds (PAIFs): process and effects of entry into the PAIF regime: effects of entry into the PAIF regime

Cessation of the pre-PAIF 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 PAIF that is carried on afterwards, which is exempt from tax.

Under regulation 69V(1) SI 2006/964 this is done by deeming the pre-PAIF property business of the OEIC as ceasing immediately before it joins the PAIF 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-PAIF business immediately before entry to the regime and reacquired by the tax-exempt PAIF 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 IFM04320 ‘Calculation of net income for the tax exempt property investment business’.

The deemed disposal and reacquisition does not apply for the purposes of tax on 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 PAIF regime applies to the OEIC it shall remain in the regime indefinitely unless certain events occur (see IFM04510). There is, therefore, no need for the PAIF 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. 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 PAIF regime applies to the OEIC for the tax exempt business and other activities of the business.