Reserved Investor Fund – release of draft legislation

On 6 March 2024, at Spring Budget 2024, the Government published the responses to the 2023 consultation on a potential new UK unauthorised contractual scheme fund aimed at professional and institutional investors - the Reserved Investor Fund (RIF), and confirmed that it will proceed with the introduction of the collective investment vehicle. The Government has subsequently published the primary legislation in the Finance Bill 2024 and draft secondary legislation for consultation which provides further details on proposed tax treatment of the RIF.

The RIF is expected to be a suitable vehicle to hold UK real property (particularly commercial property), but the Government has confirmed that the fund will be able to invest in a wide range of asset classes beyond real estate, subject to the RIF being within one of the following three restricted regimes:

• Where at least 75 percent of the value of the RIF’s assets is derived from UK property (so the RIF is ‘UK property rich’ for the purposes of the non-resident capital gains rules);
• Where all investors in the fund are exempt from tax on gains other than by reason of residence (e.g., certain pension funds); or
• Where the fund does not directly invest in UK property, or in UK property rich companies.

These restricted regimes remain as originally proposed in the 2023 consultation and have been introduced to ensure compliance with the UK non-resident capital gains tax rules.

In line with previous announcements, the draft legislation proposes to apply the tax regime for the existing authorised co-ownership schemes to schemes meeting the eligibility conditions for RIF status; being an, unauthorised, co-ownership scheme, that is an Alternative lnvestment Fund, participation in which is limited to professional or large investors and meets any other requirements set out in the legislation. This aligns with the broad framework of the RIF regime as it was set out in the consultation document.

Eligibility conditions

The draft regulations provide detailed rules on eligibility conditions (including the types of property a RIF can hold), procedural requirements for becoming or remaining a RIF, the tax consequences that follow a RIF meeting or ceasing to meet eligibility conditions, the annual information that needs to be provided to investors and accounts that must be kept in relation to a RIF, and require information and notices to be submitted annually to HMRC. The regulations also propose the treatment of breaches of the regime including potential time limits to remedy certain breaches satisfactorily.

Stamp Duty Land Tax (SDLT)

A SDLT seeding relief will be available to the RIF in respect of UK property meeting certain conditions, which is consistent with the initial consultation.

There is currently no date set for the commencement of the regime, but once Finance Bill 2024 has been enacted and the current consultation on the draft regulations has closed on 14 May 2024, the Government has committed to finalising the legislation and it could therefore potentially take effect shortly after.

KPMG in the UK is participating in the relevant HM Treasury working group, as such, if you would like us to consider your comments for input into this process, or have questions on these proposals, speak to the authors or your usual KPMG in the UK adviser. The deadline for responding is 14 May 2024 and we are interested in your feedback as we will also be responding to HMRC.

For further information please contact:

• Amy Manchia
• Paul Bradbury