The CIV rules provide for two types of elections – the transparency election or the exemption election – that a CIV can make for NRCGT.
The Government has published how the rules on non-UK residents’ gains on disposals of UK real estate (effective from 6 April 2019) would apply to Collective Investment Vehicles (CIVs) investing predominantly in UK land, and those holding an interest in such vehicles. The CIV rules provide for two types of elections – the transparency election or the exemption election – that can be made in respect of CIVs for capital gains purposes. Where an election is made it will impact the tax treatment of disposals made by the investors, the CIV and/ or the entities in the underlying structure.
On 7 November 2018 the Government included new legislation in the Finance Bill on how these rules apply to CIVs. These new rules are in addition to the 6 July 2018 draft legislation we have provided commentary on previously.
What is the measure/ Who is this relevant to:
CIVs investing predominantly in UK land, and those holding an interest in such vehicles.
What will the impact be
The CIV rules provide for two types of elections that a CIV could make:
Default treatment of CIVs:
The default treatment of non-resident CIVs will be that they are companies for capital gains purposes (partnership CIVs remain transparent for gains). A disposal by a non-resident investor in a non-resident CIV which is UK property rich will be chargeable as a disposal of an interest in a UK property rich company in accordance with the indirect disposal rules. Such investors will not benefit from the 25 percent ownership exemption.
Qualifying conditions for the exemption election:
Broadly, the following conditions should be met:
Condition 1 - The CIV is a collective investment scheme and it meets the genuine diversity of ownership condition, or the CIV is a body corporate and it meets the recognised stock exchange condition and the non-close condition, or any CIV meets the UK tax condition and the non-close condition.
Condition 2 - The CIV must have made reports to HMRC of disposals of interests in it by investors within the 24 months prior to the disposal requiring an exemption. See further detail below in respect of reporting.
Condition 3 - The CIV must be UK property rich.
What action should be taken:
The transparency election must be made within 12 months of the CIV making its first acquisition in UK land (or 5 April 2020 for a fund existing on 6 April 2019).
The election for exemption would have effect subject to provision of information or documents as may be specified by HMRC. These must be provided in respect of every period of account, within 12 months from the end of the period of account.