IFM09425 - Becoming a RIF: Conditions not initially met: further requirements if UK property rich condition not initially met
Further conditions (Regulation 13(5)) must be met in order for the UK property rich condition to be treated as met for the initial period:
- the scheme must not have previously been a RIF or an authorised contractual scheme (CoACS), or
- a scheme where participants have received units in exchange for something other than money
These conditions are intended to ensure that unrealised gains from investments in other funds cannot be rolled over into a new RIF, where that RIF is making use of the grace period. Without the conditions, such rolled up gains could be realised by non-resident participants disposing of units in a RIF whilst it was not in fact UK property rich and so no charge to tax would be possible.
Additionally, if the scheme makes a specific type of payment (a prohibited repayment of capital), during the grace period, the grace period is treated as having never applied in relation to the scheme, unless as a matter of fact the scheme would actually meet the UK property rich condition at the time the payment is made (Regulation 13(4)). For example, a co-ownership contractual scheme is relying on Regulation 13(1) to satisfy the UK property rich condition during its first 12 months. If, during that period, the scheme makes a prohibited repayment of capital, it is treated as though it had never satisfied the UK property rich condition. For this example, this could include a cash payment made to a non-resident investor, where the payment derives from a direct or indirect disposal of UK land and is not subject to income tax or corporation tax. Without this rule, a non-resident investor would not otherwise be subject to UK tax if the RIF was not UK property rich at that time.