IFM09550 - Changes in and Breaches of Qualifying conditions and notification requirements: Breaches of qualifying conditions: Wind-down period
A RIF that relies on meeting the UK property rich condition may breach the condition on one or more occasions during a winding up period when it is disposing of its assets and returning cash to its participants. Without further provision a RIF would at that time exit the RIF regime, unless it met another applicable condition (that is, the non-UK property assets condition or the exempt investor condition).
Regulation 19 addresses this by providing that a RIF will in such circumstances be treated as if it continued to meet the UK property rich condition for the duration of the ‘winding up period’. That period is by default 2 years beginning with the day on which the RIF ceased to meet the UK property rich condition, but it will also include any extension of that period granted by HMRC following an application made by the operator of the scheme. Regulation 19 sets out the application process and time limits, and the available appeal procedure in the event that an officer of HMRC does not consider it reasonable to agree to an initial or further extension of the winding up period.
Where Regulation 19 applies, all participants are deemed to have sold and reacquired their units in the RIF at their market value immediately before the time that the RIF ceases to meet the UK property rich condition. This protects the UK’s taxing rights under the non-resident capital gains rules in cases where any participants are non-UK resident. The operator must notify all participants of the deemed disposal within 30 days from the day on which the RIF ceased to meet the UK property rich condition.
A RIF operator failing to comply with the notification requirements in Reg 19 within the prescribed time limit may be liable to a penalty (IFM09770).