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Investment Managers Welcome New UK Property Funds

by Robert Lee,, London

02 October 2007

The Investment Management Association (IMA) has welcomed the UK Treasury's new proposals for a Property Authorised Investment Funds (PAIFs) regime, which will ensure that pension funds charities and SIPP, ISA and CTF investors will no longer pay tax in the funds.

The proposals from the Treasury have come in response to industry concerns that, while tax-paying investors currently pay the correct amount of tax, non tax-paying investors pay tax when they should not be doing so. However, according to the IMA, the remaining question is whether the additional cost of complying with the new regime will be outweighed by the tax benefits to exempt investors.

The IMA believes that this depends on two issues: First, to deal with the problems relating to limitations on corporate investors receiving 10% or more of a fund's distributions, there is a proposal that corporate investors, instead of directly investing in a PAIF, do so via a feeder authorised investment fund. The question is whether this "feeder" structure" will work at a low enough cost to be beneficial to corporate investors. The IMA believes the answer is yes.

Second, there are issues around the proposal to ring-fence and distribute three different types of income. The IMA says that not only would this require significant systems changes throughout the distribution chain, but it would be confusing to retail investors, who would be faced with distribution statements detailing different streams of income and withholding tax. The IMA is suggesting that two-line distributions would be less complex, and would also bring PAIFs into line with REITs.

Julie Patterson, Director of Regulation, Operations and Taxation at IMA commented:

"We welcome this important step in taking forward one of the issues raised in the IMA-commissioned KPMG Report on ‘Taxation and the Competitiveness of UK funds'. These proposals offer an opportunity to put the UK onto the front foot and to stem the exodus of funds going offshore."

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