IFM09120 - Overview of the legislation
Tax and regulatory Statutory Instruments setting out the detail for the new Reserved Investor Fund (RIF) in regulations came into force on 19 March 2025.
The tax regulations (The Co-ownership Contractual Schemes (Tax) Regulations 2025, S.I. 2025/200 (‘SI 2025/200’)) are made under powers in:
- section 103C of, and paragraph 48 of Schedule 5AAA to, the Taxation of Chargeable Gains Act (TCGA) 1992
- section 41 of the Finance (No 2) Act 2017
- section 20 of the Finance (No. 2) Act 2024
The regulatory regulations (The Unauthorised Co-ownership Alternative Investment Funds (Reserved Investor Fund) Regulations 2025, S.I. 2025/216) are made under powers in section 261Z6(1) of the Financial Services and Markets Act (FSMA) 2000.
The Regulations set out:
- the qualifying conditions for a RIF (in addition to the conditions contained within section 20 of the Finance (No 2) Act 2024)
- entry and exit provisions
- accounting provisions
- information requirements
- penalties for failure to give information or requisite notices
- umbrella schemes provisions
Regulation 2 of SI 2025/200 defines certain terms used in the regulations. It also provides that other terms take their meaning from the Taxation of Chargeable Gains Act 1992 or FSMA 2000.
The RIF is an unauthorised co-ownership contractual scheme (COS). The terms ‘contractual scheme’ and ‘co-ownership scheme’ are defined in section 235A of FSMA 2000, as provided for in section 20(6) of the Finance (No 2) Act 2024. The term ‘co-ownership’ rather than ‘contractual’ is used in the regulatory statutory instrument and section 20 Finance (No. 2) Act 2024, because section 235A of FSMA 2000 refers to a “contractual scheme”, meaning either:
- a co-ownership scheme
- a partnership scheme
There is no intention to introduce a partnership scheme equivalent for RIFs (whereas there is a partnership scheme for authorised contractual schemes). Therefore, all schemes within the RIF regime will be co-ownership schemes.
The regulatory statutory instrument and section 20 Finance (No. 2) Act 2024 also make reference to a scheme that is an ‘AIF’, that is, an ‘alternative investment fund’ as defined by Regulation 3 of the Alternative Investment Fund Managers Regulations 2013 (S.I. 2013/1773). This reflects the government’s view that a scheme within the RIF regime should be required to be an AIF, so that it is subject to an appropriate regulatory framework.
The term ‘unauthorised contractual scheme’ is relevant for tax purposes in the context of Chapter 6 of the regulations ‘SDLT consequences of becoming and ceasing to be a RIF’ and Regulation 56 ‘Structures and building allowances’. Regulation 27 defines an unauthorised contractual scheme as being a co-ownership scheme that is not authorised for the purposes of FSMA 2000, is not a RIF, and is not an eligible co-ownership scheme within the meaning of Regulation 29(1).
The term eligible co-ownership scheme is defined in Regulation 29 within Chapter 6 of the regulations. Regulation 29 provides for continuing opacity for Stamp Duty Land Tax (‘SDLT’) purposes for co-ownership schemes that cease to be a RIF as a result of ceasing to meet a qualifying condition, continue to be a UK-based AIF, and meet the conditions set out in section 261E(2) and (3) of FSMA 2000 (participation limited to professional or large investors), and that are not an authorised co-ownership scheme.