IMA argues case for open ended property funds

Tax rates and regimes must be changed to reflect the different nature of property investment funds (PIFs) if these sorts of products are to have any chance of success, argues the IMA in its response to government consultations.

Proposals for PIFs have been put forward by the government as a means to unlock investor demand for property-based investments similar to those enabled in countries such as Australian and the US.

However, the IMA says in its response that the UK market for property funds will only really take off if all types of collective investment schemes are able to offer access to property assets.

The association says the government should “tax income in the hands of the investor and not at the fund level.”

”But, tax basic rate taxpayers at their lower rate of 20% in order to maintain parity with the current tax position.”

”Also, income tax at the lower basic rate to be withheld on distribution, ensuring basic rate taxpayers fall outside the self-assessment regime, except for investors who are exempt and/or otherwise eligible to receive gross income.”

The IMA urges capital allowances to be treated in the same way for both closed and open ended funds with “no tax on capital gains within the REIT (Real Estate Investment Trust)”.

Otherwise, a big issue is the precisely the different treatment of closed ended versus open ended funds, the IMA suggests.

As the representative association for providers of unit trusts and open ended investment companies (OEICs), the IMA has a certain interest in ensuring its members can take part in the PIFs market.

Because of different tax treatment of closed and open ended funds in general, the government must therefore take steps to ensure investors are not persuaded into one or other type of fund, the IMA says.

”We recognise that a minimum income distribution requirement of around 90% is common in other REIT markets, but the basis must be income net of expenses. We would also note that, in comparison, open-ended funds are required to distribute 100% of net income.”

This point is stressed again in the response to the government’s question on whether “PIF” is the right name to use for the proposed class of investments.

”We recommend that the UK refer to its range of property investment vehicles as: