A government review of the UK funds regime, launched in conjunction with yesterday鈥檚 Budget announcement, has been welcomed by real estate investment managers.
The review, which is designed to 鈥渆nsure the ongoing competitiveness and sustainability鈥� of the UK funds sector, could eventually encourage the creation of more onshore real estate investment vehicles being launched in the UK.
It will cover the tax treatment of special-purpose vehicles, or asset-holding companies (AHCs), in alternative fund structures. Closed-ended real estate funds, which are typically structured as limited partnerships, hold underlying assets in AHCs 鈥� but their tax treatment in the UK has led fund managers to base them offshore.
Matt Probert, head of tax at Savills Investment Management, said the UK 鈥渞emains uncompetitive as a holding jurisdiction for international real estate funds, which has resulted in a shift of holding and fund management activities to other jurisdictions鈥�.
He said the consultation was 鈥渂oth welcome and long overdue鈥� and hoped that this was 鈥渢he first step to a more level playing field鈥�.
Last week, the government was urged by the Investement Association (IA) and the Association of Real Estate Funds (AREF) to establish a new onshore, closed-ended professional investor fund (PIF) for institutional investors that could be used to invest in real estate and other asset classes, including illiquid assets and private markets like infrastructure.
Stephen Palmer, director of indirect investments at DTZ Investors, welcomed the review. 鈥淭he broad aim of ensuring the ongoing competitiveness of the UK echoes the concerns expressed in the AREF proposals issued last week for the PIF.
鈥淭he consultation published alongside the Budget covering asset holding companies explicitly aims to explore measures that will 鈥榤ake the UK a more attractive location for companies used by funds to hold assets鈥�, and as such the review will begin to explore the need to establish other alternative onshore fund structures.
鈥淎 consultation on the PIF later this year would be a natural follow-on step.鈥�
Paul Richards, managing director of AREF, said: 鈥淲e are delighted the government has listened and responded to the submission on which we worked closely with the IA and we look forward to contributing to the government鈥檚 review of the UK鈥檚 funds regime.鈥�
Melville Rodrigues, a partner at law firm Charles Russell Speechlys who has been advocating the creation of the PIF since last year, said he was 鈥渄elighted鈥� that the government had announced it would undertake the review this year.
鈥漊K fund management houses will be able to utilise the PIF as an onshore fund to pursue real estate, infrastructure and other investment strategies related to the UK and elsewhere,鈥� he said.
鈥淚n addition, the PIF is designed to be attractive to domestic as well as to international pension fund and other institutional investors.
鈥淔und management houses looking for a closed-ended or hybrid fund to hold UK real estate investments, which has the attributes of being unlisted, tax-transparent and offering tradeable units, are currently forced offshore.鈥�
He added: 鈥漈he PIF will address the onshore fund gap and reduce barriers for new funds, enhancing the UK鈥檚 brand for fund and asset management.鈥�
John Forbes, an independent consultant who specialises in real estate funds, said the consultation on AHCs was 鈥渁n opportunity for the industry to comment on what they would like to see in the regime as the consultation is a very open one鈥�.
He also said the government鈥檚 鈥渁ssumptions about the types of fund for which this is relevant is far too narrow鈥�.
Forbes added: 鈥淚n terms of competing with Luxembourg, which is the obvious jurisdiction of choice, the attractiveness of the UK will be diminished by loss of access to the EU Parent/Subsidiary Directive next year and there is not a lot that the consultation can do about that at this stage.鈥�
