UK Property Authorised Investment Fund

(PAIF)

Legal form

A Property Authorised Investment Fund (PAIF) is a Property Investment Fund, structured as an open-ended investment company (OEIC).

Tax status

The PAIF is opaque for UK corporate income tax purposes. A PAIF is exempt from capital gains tax but is required to distribute all its income. Its activities are also subject to all other taxes e.g. employment taxes, VAT and transfer taxes.

Tax treatment at entity level

Property investment business income is exempt from corporate income tax (e.g. income from property rental business, shares in UK REITs or non-UK REIT equivalents). Distributions from other corporate should also be exempt from UK tax. While residual income (e.g. interest income) is subject to corporate tax, a corresponding deduction should be available when the income is distributed to investors. Consequently there is effectively no taxation at the level of the fund.

Treatment of investors

UK corporate investors may have to pay corporate taxes (currently 20%) on all income and gains, with the exception of dividend income, which may be exempt from UK tax. Individual investors pay income tax at a rate of 45% on property income distributions and interest, 30.56% (effective) on dividends and 28% on gains.

Withholding tax

Withholding tax is levied at a rate of 20% on distributions of rental income or interest unless the investor is eligible to receive this income gross, e.g. UK pension funds, UK corporate or UK charities. Separate reclaims of withholding tax where there is treaty relief can be made by recipients after the distributions are received but there is no upfront treaty rate reduction.

Other taxes

With effect from 1 April 2016 and subject to certain qualifying conditions being met, SDLT exemption is available on seeding of properties into PAIFs

Treaty status

In principle, the PAIF has access to the UK treaties, as well as to EU Directives.

Filing obligations

The fund submits a UK corporate income tax return.

Requirements for authorisation

  • The OEIC needs to fulfil the following conditions:
  • Property investment business conditions.
  • Genuine diversity of ownership conditions.
  • A limitation on corporate ownership condition.

Loan creditor conditions (where relevant). A balance of business condition and, if relevant, an additional limited borrowing condition for property AIFs that are qualified investor schemes.

Investment restrictions

Maximum thresholds may apply to individual investments made by the PAIF.

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