[F1PART 4AU.K.PROPERTY AIFS

CHAPTER 1U.K.PRELIMINARY PROVISIONS

Property AIFsU.K.

69A.—(1) This Part enables an open-ended investment company which meets the conditions in regulations 69D to 69O—

(a)to benefit from the exemption from corporation tax in accordance with regulation 69Y(1), and

(b)to have liabilities to tax imposed on the company and on participants in accordance with Chapters 3, 4 and 5 of this Part.

(2) In these Regulations an open-ended investment company to which this Part applies may be referred to as a “Property AIF”.

Structure of this PartU.K.

69B.  The structure of this Part of these Regulations is as follows—

This Chapter contains preliminary provisions;

Chapter 2 deals with entry into and membership of the Property AIF regime;

Chapter 3 deals with the tax treatment of Property AIFs;

Chapter 4 deals with distributions made by Property AIFs;

Chapter 5 deals with the treatment of participants in Property AIFs;

Chapter 6 deals with compliance in relation to the Property AIF regime; and

Chapter 7 contains provisions relating to an open-ended investment company’s leaving the Property AIF regime.

Key conceptsU.K.

69C.—(1) In this Part “entry” means the time when this Part begins to apply to an open-ended investment company.

(2) In this Part “cessation” means the time when this Part ceases to apply to an open-ended investment company.

(3) In this Part, in relation to an open-ended investment company—

(a)“F (pre-entry)” means the open-ended investment company before this Part begins to apply to it,

(b)“F (tax-exempt)” means the open-ended investment company in so far as it carries on property investment business (within the meaning of regulation 69F) while this Part applies to it,

(c)“F (residual)” means the open-ended investment company in so far as it carries on business other than property investment business while this Part applies to it, and

(d)“F (post-cessation)” means the open-ended investment company after this Part has ceased to apply to it.

[F2(4) In this Part, a “dedicated feeder fund” in relation to a property AIF means a fund which—

(a)is a unit trust scheme;

(b)is dedicated to investment in the property AIF for which it is a feeder fund (in accordance with its prospectus); and

(c)holds at least 85% of its assets in the form of shares in that property AIF.]

CHAPTER 2U.K.ENTRY INTO AND MEMBERSHIP OF THE PROPERTY AIF REGIME

Conditions of membership of the Property AIF regimeU.K.

Conditions for this Part to apply to companyU.K.

69D.  In order for this Part to apply to an open-ended investment company in respect of an accounting period, the following conditions must be met—

(a)the property investment business condition (see regulation 69E);

(b)the genuine diversity of ownership condition (see regulation [F39A]);

(c)the corporate ownership condition (see regulation 693K);

(d)the loan creditor condition (see regulation 694M);

(e)the balance of business conditions (see regulation 69N); and

(f)the notification condition (see regulation 69O).

Conditions for this Part to apply to a company where the company is also a qualified investor schemeU.K.

F469DA.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The property investment business conditionU.K.

The property investment business conditionU.K.

69E.—(1) The property investment business condition is that the open-ended investment company must meet conditions A and B throughout the accounting period.

(2) Condition A is that the company’s instrument of incorporation and its prospectus F5... include a statement that the company’s investment objectives are—

(a)to carry on property investment business, and

(b)to manage cash raised from investors for investment in the property investment business.

(3) Condition B is that the company must carry on property investment business.

F6(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “property investment business”U.K.

69F.—(1) In this Part “property investment business” means business consisting of any one or more of—

(a)property rental business (see regulation 69H);

(b)owning shares in UK-REITs; and

(c)owning shares or units in an entity [F7within section 528(4A)(j) of CTA 2010 (overseas equivalent to UK REIT)].

(2) In these Regulations “UK-REIT” [F8has the meaning given in section 518(4) of CTA 2010].

F9(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F9(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F9(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F9(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F10(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8) This regulation is subject to the further provisions in regulation 69G.

Property investment business: further provisionsU.K.

69G.—(1) If an open-ended investment company to which this Part applies receives a distribution from a UK-REIT—

(a)the distribution is income of F (tax-exempt) to the extent that the distribution represents business of C (tax-exempt) carried on by the UK-REIT, and

(b)the distribution is income of F (residual) to the extent that the distribution represents business other than business of C (tax-exempt) carried on by the UK-REIT.

(2) In paragraph (1) “C (tax-exempt)” shall be construed in accordance with Part 4 of the Finance Act 2006.

(3) If an open-ended investment company to which this Part applies receives a distribution from an entity within regulation 69F(1)(c), the distribution is income of F (tax-exempt) except to the extent that the distribution is identified, at the time at which it is made, as arising from any activity of the entity that is not property rental business.

(4) For the purposes of this Part an asset is involved in property investment business if—

(a)it is an estate, interest or right in or over land by the exploitation of which property rental business is conducted;

(b)it consists of shares owned by the open-ended investment company in a UK-REIT; or

(c)it consists of shares [F11or units] owned by the open-ended investment company in an entity within regulation 69F(1)(c).

Meaning of “property rental business”U.K.

69H.—(1) In this Part “property rental business” means—

(a)property rental business within the meaning given by section 104 of FA 2006, and

(b)the relevant business of an intermediate holding vehicle (see regulation 69I).

(2) For the purposes of paragraph (1)(b) the relevant business of an intermediate holding vehicle is its property rental business within the meaning given by section 104 of FA 2006, but disregarding subsection (1)(a) of that section.

(3) For the purposes of this Part an asset is involved in property rental business if—

(a)it is an estate, interest or right in or over land by the exploitation of which property rental business is conducted, or

(b)it consists of shares owned by the open-ended investment company in an intermediate holding vehicle.

Meaning of “intermediate holding vehicle”U.K.

69I.—(1) For the purposes of regulation 69H, an entity is an “intermediate holding vehicle” in an accounting period if it meets conditions A to F throughout the accounting period.

(2) Condition A is that the vehicle is a company, trust or partnership.

(3) Condition B is that the vehicle is not a collective investment scheme.

(4) Condition C is that the vehicle is wholly owned by the open-ended investment company (the “parent”) or another intermediate holding vehicle or series of intermediate holding vehicles wholly owned by the parent, unless and to the extent that local legislation or regulations relating to the intermediate holding vehicle holding the property specified in paragraph (5) requires a proportion of local ownership.

(5) Condition D is that the function of the intermediate holding vehicle is solely to enable the holding, by the parent, of estates, interests or rights in or over land outside the United Kingdom by the exploitation of which property rental business is conducted.

(6) Condition E is that the intermediate holding vehicle has its accounts consolidated with those of the parent.

(7) Condition F is that all property rental income of the intermediate holding vehicle (or the full proportion of that income representing the interest of the parent in the intermediate holding vehicle) must be reflected in the distribution accounts of the parent at the same time as that income is reflected in the accounts of the intermediate holding vehicle.

The genuine diversity of ownership conditionU.K.

The genuine diversity of ownership conditionU.K.

F1269J.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The corporate ownership conditionU.K.

The corporate ownership conditionU.K.

69K.—(1) The corporate ownership condition is that the open-ended investment company must meet conditions A to C and (if applicable) condition D at the time that this Part begins to apply to the company and throughout the accounting period.

This is subject to regulation 69L(1).

(2) Condition A is that no body corporate is beneficially entitled (directly or indirectly) to 10% or more of the net asset value of the fund.

(3) Condition A is treated as met if—

(a)the company has taken reasonable steps to prevent a body corporate from acquiring a holding of 10% or more of the net asset value of the fund,

(b)a body corporate has nevertheless acquired such a holding,

(c)immediately upon becoming aware of the situation, the company has taken steps to ensure that the holding is reduced below 10% of the net asset value of the fund, and

(d)the company has continued, with all reasonable speed, to take steps to ensure that the holding is so reduced.

(4) Condition B is that the company’s instrument of incorporation and its prospectus include provisions under which any body corporate which becomes a [F13participant] in the company—

(a)must undertake not to acquire 10% or more of the share capital of the company, and

(b)must undertake, on becoming aware that it has acquired 10% or more of the share capital of the company, to reduce its holding of that share capital below 10%.

(5) Condition C is that the company’s instrument of incorporation and its prospectus include provisions under which a body corporate acquiring shares in the company must give a certificate in accordance with paragraph (6) or (7).

(6) The certificate is a certificate that the body corporate acquiring shares holds the shares as beneficial owner.

(7) The certificate is a certificate that the body corporate acquiring shares holds some or all of those shares otherwise than as a beneficial owner, but that the body corporate—

(a)holds less than 10% of the share capital of the company on behalf of itself or any one other corporate beneficial owner, and

(b)has obtained the undertakings in the terms specified in sub-paragraphs (a) and (b) of paragraph (4) from every other body corporate on whose behalf it owns shares in the company otherwise than as a beneficial owner.

(8) Condition D is that, in a case in which the body corporate acquiring shares in the company gives a certificate in accordance with paragraph (7), the body corporate acquiring the shares has undertaken to disclose the following information to the manager of the company if the manager so requires—

(a)the names of any body corporate on whose behalf the body corporate owns shares in the company otherwise than as a beneficial owner, and

(b)the extent of the holding of that body corporate in the company.

The corporate ownership condition: further provisionsU.K.

69L.—(1) The open-ended investment company meets conditions B and C of the corporate ownership condition if it provides in its instrument of incorporation and its prospectus that a body corporate is prohibited from acquiring shares in the open-ended investment company.

(2) The open-ended investment company meets conditions B and C of the corporate ownership condition if—

(a)it provides in its instrument of incorporation and its prospectus that a body corporate is prohibited from acquiring shares [F14as a participant] in the open-ended investment company,

(b)a body corporate (“BC”) acquires shares in the open-ended investment company,

(c)BC does not hold those shares as beneficial owner, and

(d)BC gives a certificate in accordance with paragraph (3).

(3) The certificate is a certificate—

(a)that BC does not hold any of the shares in the open-ended investment company as beneficial owner, and

(b)that none of the beneficial owners of BC’s shares in the open-ended investment company is a body corporate.

(4) Paragraph (5) applies if the trustees of a unit trust scheme—

(a)hold shares in the open-ended investment company, and

(b)are chargeable, in the United Kingdom, either to income tax or to corporation tax in their capacity as trustees of that unit trust scheme.

(5) For the purposes of regulation 69K [F15the unit trust scheme is treated] as the beneficial owners of the shares; and a person holding units in the unit trust shall not be treated as beneficially entitled (directly or indirectly) to 10% or more of the net asset value of the open-ended investment company’s fund by virtue of holding the units.

(6) In this Part “body corporate” means—

(a)a body corporate incorporated under the laws of any part of the United Kingdom or any other territory, or

(b)an entity which is treated as a body corporate for tax purposes—

(i)in accordance with the law of a territory outside the United Kingdom with which relevant arrangements have been entered into, or

(ii)in accordance with an international agreement containing relevant arrangements.

(7) In paragraph (6) “relevant arrangements” means arrangements which—

(a)have been entered into with a view to affording relief from double taxation, and

(b)have effect by virtue of an Order in Council under section 788 of ICTA.

The loan creditor conditionU.K.

The loan creditor conditionU.K.

69M.—(1) The loan creditor condition is that the open-ended investment company must meet conditions A to C throughout the accounting period in the case of any loan relationship to which the company is party as debtor.

(2) Condition A is that, in the case of a debtor relationship of the company, the person standing in the position of a creditor as respects the debt in question is not entitled to an amount by way of interest which depends to any extent on—

(a)the results of all or part of the open-ended investment company’s business, or

(b)the value of any of the company’s assets.

(3) For the purposes of condition A, a loan shall not be treated as dependent on the results of the company’s business by reason only that the terms of the loan provide—

(a)for the interest to be reduced in the event of results improving, or

(b)for the interest to be increased in the event of results deteriorating.

(4) Condition B is that, in the case of a debtor relationship of the company, the person standing in the position of a creditor as respects the debt in question is not entitled to an amount by way of interest which exceeds a reasonable commercial return on the consideration lent.

(5) Condition C is that, in the case of a debtor relationship of the company, the person standing in the position of a creditor as respects the debt in question is entitled on repayment to an amount which—

(a)does not exceed the consideration lent, or

(b)is reasonably comparable with the amount generally repayable (in respect of an equal amount of consideration) under the terms of issue of securities listed on a recognised stock exchange.

(6) In this regulation “loan relationship” and “debtor relationship” shall be construed in accordance with Chapter 2 of Part 4 of FA 1996 (loan relationships).

The balance of business conditionsU.K.

The balance of business conditionsU.K.

69N.—(1) The balance of business conditions are that conditions A and B must be met.

(2) Condition A is that the net income of F (tax-exempt) for an accounting period (determined in accordance with regulation 69Z1) is—

(a)at least 40% of the open-ended investment company’s net income (as defined in regulation 69Z) where this Part applies to a newly qualified company in its first accounting period, or

(b)at least 60% of the open-ended investment company’s net income (as defined in regulation 69Z) where this Part applies to a company in an accounting period in any other circumstances.

(3) Condition B is that the value of the assets involved in property investment business is—

(a)at least 40% of the total value of the assets held by the open-ended investment company at the end of the accounting period where this Part applies to a newly qualified company in its first accounting period, or

(b)at least 60% of the total value of the assets held by the open-ended investment company at the end of the accounting period where this Part applies to a company in an accounting period in any other circumstances.

(4) For the purposes of condition B—

(a)assets must be valued in accordance with generally accepted accounting practice,

(b)where generally accepted accounting practice offers a choice of valuation between cost basis and fair value, fair value must be used, and

(c)no account shall be taken of liabilities secured against or otherwise relating to assets (whether generally or specifically).

(5) In this Part a “newly qualified company” means a company—

(a)to which this Part applies immediately upon its authorisation, and

(b)which has not been an authorised investment fund before that authorisation.

The notification conditionU.K.

The notification conditionU.K.

69O.—(1) The notification condition is that conditions A and B must be met.

(2) Condition A is—

(a)that the manager of an existing open-ended investment company has given notice for this Part to apply to the company, or

(b)if it is proposed to incorporate an open-ended investment company, that the person expected to become the manager of the open-ended investment company on its incorporation (the “applicant”) has given notice for this Part to apply to the company.

(3) Condition B is that the notice given under paragraph (2) has taken effect.

(4) If notice is given under paragraph (2)(a), the company must obtain any necessary shareholder and regulatory approvals to its instrument of incorporation and prospectus before giving the notice.

(5) If notice is given under paragraph (2)(b), the terms of the proposed company’s instrument of incorporation must be such that the proposed company, on its incorporation, will be required to meet—

(a)the property investment business condition (see regulation 69E), and

(b)the genuine diversity of ownership condition (see regulation [F169A]).

(6) In this Part—

the “applicant” means the person referred to in paragraph (2)(b),

an “existing company notice” means a notice given under paragraph (2)(a), and

a “future company notice” means a notice given under paragraph (2)(b).

Form and timing of notice under regulation 69OU.K.

69P.—(1) A notice under regulation 69O must be given in writing to the Commissioners.

(2) An existing company notice must be given at least 28 days before the beginning of the specified period.

This is subject to the following paragraphs of this regulation.

(3) A future company notice must be given at least 42 days before the date of the expected incorporation and authorisation.

This is subject to the following paragraphs of this regulation.

(4) A notice under regulation 69O may be withdrawn or amended at any time before it takes effect—

(a)by the manager (in the case of an existing company notice), or

(b)by the applicant (in the case of a future company notice).

(5) If a notice under regulation 69O is amended before it is due to take effect, regulation 69O shall apply to the amended notice.

(6) But if HM Revenue and Customs give notice that they are satisfied that the amended notice is valid, the amended notice shall take effect as if given on the date of the original notice.

(7) An existing company notice may be given at any time before the beginning of the specified period if—

(a)HM Revenue and Customs have given clearance under regulation [F179B], and

(b)the manager of the open-ended investment company certifies that there have been no changes in substance between—

(i)the form in which the company’s instrument of incorporation and its prospectus were considered by HM Revenue and Customs before giving the clearance, and

(ii)the form in which it is proposed that those documents will apply at the beginning of the specified period.

(8) A future company notice may be given at any time before the proposed company is authorised and incorporated if—

(a)HM Revenue and Customs have given clearance under regulation [F189B], and

(b)the applicant certifies that there have been no changes in substance between—

(i)the form in which the proposed company’s instrument of incorporation and its prospectus were considered by HM Revenue and Customs before giving the clearance, and

(ii)the form in which it is proposed that those documents will apply at the time when the proposed company is authorised.

Contents of notice under regulation 69OU.K.

69Q.—(1) This regulation applies if notice is given under regulation 69O.

(2) An existing company notice must specify the accounting period from the beginning of which this Part is to apply to the company (the “specified accounting period”).

(3) An existing company notice must be accompanied by—

(a)a statement by the manager of the open-ended investment company that the conditions specified [F19regulation 9A and] in regulations 69E to 69N are reasonably expected to be met in respect of the company throughout the specified accounting period;

(b)the following documents relating to the company—

(i)its instrument of incorporation, and

(ii)its prospectus;

(c)a copy of the application to the [F20appropriate regulator] for agreement to changes in the company’s instrument of incorporation and its prospectus; and

(d)copies of any documents accompanying the application mentioned in sub-paragraph (c) to the extent that those documents do not fall within sub-paragraphs (a) and (b).

(4) A future company notice must specify that this Part will apply to the proposed company from the date of its incorporation and authorisation.

(5) A future company notice must be accompanied by—

(a)a statement by the applicant that the conditions specified in [F21regulation 9A and] regulations 69E to 69N are reasonably expected to be met in respect of the proposed company throughout its first accounting period;

(b)the following documents relating to the proposed company—

(i)its proposed instrument of incorporation, and

(ii)its F22... prospectus F23... ;

(c)a copy of the application to the [F24appropriate regulator] for approval of the proposed company as an open-ended investment company; and

(d)copies of any documents accompanying the application mentioned in sub-paragraph (c) to the extent that those documents do not fall within sub-paragraphs (a) and (b).

Procedural matters relating to the giving of notice for this Part to applyU.K.

Notice: further provisions: quashing noticesU.K.

69R.—(1) This regulation applies if any of conditions A to C are met.

(2) Condition A is that an existing company notice is given, but the notice is not accompanied by the documents specified in regulation 69Q(3)(b).

(3) Condition B is that a future company notice is given, but the notice is not accompanied by the documents specified in regulation 69Q(5)(b).

(4) Condition C is that a person gives a notice under regulation 69O in circumstances where the documents supplied do not demonstrate that the open-ended investment company (or the proposed open-ended investment company) will meet all the conditions of membership of the Property AIF regime.

(5) HM Revenue and Customs may give a notice (a “quashing notice”) quashing the notice given under regulation 69O—

(a)to the manager of the open-ended investment company if an existing company notice has been given, or

(b)to the applicant if a future company notice has been given.

Procedure relating to quashing noticesU.K.

69S.—(1) HM Revenue and Customs must not give a quashing notice until—

(a)they have given a notice (a “preliminary notice”) to the person giving the notice under regulation 69O specifying the reasons why the preliminary notice is given, and

(b)they have given the person giving the notice under regulation 69O a period of 28 days to rectify the matters specified in the preliminary notice.

Paragraph (1)(b) is subject to paragraphs (7) to (9).

(2) HM Revenue and Customs must give a preliminary notice within a period of 28 days beginning with the day on which they receive the notice given under regulation 69O.

(3) HM Revenue and Customs must—

(a)give a quashing notice, or

(b)give notice to the manager of the open-ended investment company or to the applicant (as the case may be) that they are satisfied that the matters specified in the preliminary notice have been rectified,

within a period of 28 days beginning on the day specified in paragraph (4).

(4) The day specified is whichever is the earlier to occur of—

(a)the day immediately following the expiry of the period specified in the preliminary notice, and

(b)the day on which HM Revenue and Customs receive notice from the manager of the open-ended investment company or from the applicant (as the case may be) that the manager or applicant thinks—

(i)that the matters specified in the preliminary notice have been rectified, or

(ii)that the original notice given under regulation 69O is valid.

(5) If HM Revenue and Customs give a preliminary notice, the open-ended investment company (or, as the case may be, the proposed open-ended investment company) in respect of which the notice is given may not enter the Property AIF regime until HM Revenue and Customs have notified the manager of the company (or, as the case may be, the applicant) that they are satisfied that the matters specified in the preliminary notice have been rectified.

(6) If HM Revenue and Customs give a quashing notice, and the person to whom the notice is given appeals, the open-ended investment company (or, as the case may be, the proposed open-ended investment company) in respect of which the notice is given may not enter the Property AIF regime until the appeal is determined.

(7) The period of 28 days mentioned in paragraph (1)(b) is replaced by the period referred to in paragraph (9) if, within that 28 day period, the conditions specified in paragraph (8) are met.

(8) The conditions are that—

(a)HM Revenue and Customs and the applicant are in agreement as to the changes needed to the notice or to the documents accompanying the notice (or to both),

(b)the applicant has given notice to HM Revenue and Customs stating that the changes referred to in sub-paragraph (a) will take a specified period (which is longer than 28 days) to effect, and

(c)HM Revenue and Customs have given notice to the applicant accepting the statement made in the notice given under sub-paragraph (b).

(9) The period is the specified period mentioned in paragraph (8)(b).

Appeal against quashing noticeU.K.

69T.—(1) A person to whom a quashing notice is given may appeal F25....

(2) The notice of appeal must be given to HM Revenue and Customs within a period of 28 days beginning with the day on which the quashing notice is given.

(3) On an appeal [F26that is notified to the tribunal, the tribunal] shall determine whether it was just and reasonable for HM Revenue and Customs to give the quashing notice.

(4) If the [F27tribunal allows] the appeal—

(a)[F28the tribunal may] direct that this Part shall apply to the open-ended investment company (or, as the case may be to the proposed open-ended investment company), and

(b)[F28the tribunal may] specify the date from which this Part shall so apply.

(5) The date mentioned in paragraph (4)(b)—

(a)must not be earlier than the beginning of the specified accounting period if an existing company notice has been given, and

(b)must not be earlier than the date of incorporation and authorisation if a future company notice has been given.

Clearance applicationsU.K.

Clearance in relation to the genuine diversity of ownership conditionU.K.

F2969U.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consequences of entryU.K.

Effects of entryU.K.

69V.—(1) Property rental business of F (pre-entry) shall be treated for the purposes of corporation tax as ceasing at entry.

(2) Assets which immediately before entry are involved in property rental business of F (pre-entry) shall be treated for the purposes of corporation tax as being sold by F (pre-entry) immediately before entry and reacquired by F (tax-exempt) immediately after entry.

(3) For the purposes of corporation tax, on entry one accounting period of the open-ended investment company shall end and another shall begin.

(4) On entry a new distribution period of the open-ended investment company shall begin.

(5) The sale and reacquisition deemed under paragraph (2) shall not have effect for the purposes of tax in respect of chargeable gains.

(6) For the purposes of CAA 2001, the sale and reacquisition deemed under paragraph (2)—

(a)shall not give rise to allowances or charges, and

(b)shall not make it possible to make an election under section 198 or 199 of that Act (apportionment).

(7) For the purposes of CAA 2001, anything done by or to F (pre-entry) before entry in relation to an asset which is deemed under paragraph (2) to be sold and reacquired shall be treated after entry as having been done by or to F (tax-exempt).

DurationU.K.

69W.  Once this Part has begun to apply to an open-ended investment company it shall continue to apply unless and until it ceases to apply in accordance with Chapter 7 of this Part.

CHAPTER 3U.K.THE TAX TREATMENT OF PROPERTY AIFS

Categories of businessU.K.

Ring-fencing of tax-exempt businessU.K.

69X.—(1) For the purposes of corporation tax, the business of F (tax-exempt) shall be treated as a separate business (distinct from—

(a)any business carried on by F (pre-entry),

(b)any business carried on by F (residual), and

(c)any business carried on by F (post-cessation)).

(2) For the purposes of corporation tax, F (tax-exempt) shall be treated as a separate company (distinct from—

(a)F (pre-entry),

(b)F (residual), and

(c)F (post-cessation)).

(3) In particular—

(a)a loss incurred by F (tax-exempt) may not be set off against the net income of F (residual),

(b)a loss incurred in respect of F (residual) may not be set off against the net income of F (tax exempt),

(c)a loss incurred in respect of F (pre-entry) may not be set off against the net income of F (tax-exempt) (but this regulation does not prevent a loss of that kind from being set off against profits of F (residual)),

(d)a loss incurred by F (tax-exempt) may not be set off against profits arising to F (post-cessation) (in respect of business of any kind), and

(e)receipts accruing after entry but relating to business of F (pre-entry) shall not be treated as receipts of F (tax-exempt).

(4) In paragraph (3) a reference to a loss includes a reference to a deficit, expense, charge or allowance.

(5) Section 392B of ICTA (ring-fencing of losses from overseas property business) shall not apply to business of F (tax-exempt).

(6) Paragraphs 5B and 5C of Schedule 28AA to ICTA (transfer pricing: exemption for small and medium enterprises) shall not apply to an open-ended investment company to which this Part applies (whether to F (tax-exempt) or to F (residual)).

Chargeability to taxU.K.

Chargeability to corporation taxU.K.

69Y.—(1) The net income of F (tax-exempt) (see regulation 69Z1) shall not be charged to corporation tax.

(2) The net income of F (residual) (see regulation 69Z3) shall be charged to corporation tax at the rate applicable for open-ended investment companies (see section 468A(1) of ICTA).

Meaning of “net income”U.K.

69Z.—(1) In this Part the “net income” of an open-ended investment company for an accounting period means, in the case of an open-ended investment company that prepares accounts in accordance with UK generally accepted accounting practice, the amount falling to be dealt with under the heading [F30net revenue/(expense) before taxation] in the company’s statement of total return for the accounting period.

(2) In paragraph (1) “the company’s statement of total return for the accounting period” is to be construed in accordance with regulation 12.

Calculation of net income of F (tax-exempt)U.K.

69Z1.—(1) This regulation applies to determine the net income of F (tax-exempt) for the purposes of this Part.

(2) Section 21A of ICTA (calculation of profits of Schedule A business) shall apply to income arising from the business of F (tax-exempt).

(3) Paragraph 2(3) of section 15(1) of ICTA (Schedule A: disregard of credits and debits from loan relationships and derivative contracts) shall not apply in respect of—

(a)a loan relationship if or in so far as it relates to tax-exempt business,

(b)a hedging derivative contract if or in so far as it relates to tax-exempt business, or

(c)embedded derivatives if or in so far as the host contract is entered into for the purposes of tax-exempt business.

(4) For the purposes of paragraph (3)—

(a)a derivative contract is hedging in relation to a company if or in so far as it is acquired as a hedge of risk in relation to an asset by the exploitation of which tax-exempt business is conducted,

(b)a derivative contract is hedging in relation to a company if or in so far as it is acquired as a hedge of risk in relation to a liability incurred in connection with tax-exempt business,

(c)a designation of a contract as wholly or partly hedging for the purposes of a company’s accounts shall be conclusive, and

(d)“embedded derivatives” and “host contract” shall be construed—

(i)in accordance with section 94A of FA 1996 in relation to loan contracts with embedded derivatives,

(ii)in accordance with paragraph 2A of Schedule 26 to FA 2002 in relation to non-financial contracts with embedded derivatives,

(iii)in accordance with paragraph 2B of Schedule 26 to FA 2002 in relation to hybrid derivatives.

(5) In paragraph (4)(a) the reference to an asset includes a reference to—

(a)the value of an asset, and

(b)profits attributable to it.

(6) Net income shall be computed without regard to items giving rise to credits or debits which would be within Schedule 26 to FA 2002 (derivative contracts) but for paragraph 4(2)(b) of that Schedule (exclusion of share-based and unit-trust-based contracts).

(7) Income and expenditure relating partly to tax-exempt business and partly to non-tax-exempt business shall be apportioned reasonably.

(8) Section 3(1) of CAA 2001 (claims for capital allowances) shall not apply; and any allowance which the company could claim under that section shall be made automatically and reflected in the calculation of net income.

Components of income arising to F (residual)U.K.

69Z2.—(1) For the purposes of this Part the income arising to F (residual) consists of—

(a)distributions qualifying for exemption under section 208 of ICTA, and

(b)income arising from the business of F (residual).

(2) Section 21A of ICTA (calculation of profits of Schedule A business) shall apply to income arising from the business of F (residual) if and to the extent that income arising from the business of F (residual) is chargeable to corporation tax under Schedule A.

Calculation of net income of F (residual)U.K.

69Z3.  Use this regulation to determine the net income of F (residual) for the purposes of this Part.

First rule

Determine the amount of the income arising to F (residual).

Second rule

Deduct any amounts whose deduction is required or allowed under the Corporation Tax Acts (including any distributions qualifying for exemption under section 208 of ICTA).

In this Part the amount so found is called the “pre-distribution amount”.

Third rule

Deduct the amount attributed to PAIF distributions (interest) under regulation 69Z14(b).

The result is the net income of F (residual).

Breaches of conditionsU.K.

Breach of the genuine diversity of ownership conditionU.K.

69Z4.—(1) This regulation applies if an open-ended investment company to which this Part applies is in breach of the genuine diversity of ownership condition.

(2) Within 28 days of becoming aware of the breach, the company must provide the following information to the Commissioners—

(a)the date on which the condition first ceased to be met;

(b)the date on which the company became aware of the breach;

(c)details of the condition that was breached;

(d)the nature of the breach;

(e)the steps the company proposes to take to rectify the breach; and

(f)the date by which the company proposes to rectify the breach.

(3) The date referred to in paragraph (2)(f) must be the earliest date by which the objective of complying with the genuine diversity of ownership condition may reasonably be achieved.

(4) The Commissioners may give a termination notice to the company if—

(a)the steps that the company proposes to take will not rectify the breach, or

(b)the date by which the company proposes to rectify the breach is not the earliest date by which the objective of remedying the genuine diversity ownership condition may reasonably be achieved.

(5) If there are three different breaches of the genuine diversity of ownership condition in three different accounting periods in a period of ten years beginning with the first day of the accounting period in which the company becomes aware of the first of those breaches, the Commissioners may give a termination notice to the company.

Breach of the corporate ownership conditionU.K.

69Z5.—(1) This regulation applies if an open-ended investment company to which this Part applies is in breach of the corporate ownership condition.

(2) If there is a breach which is caused by the action of a shareholder in the company and the company has not taken reasonable steps to prevent the breach (so that, accordingly, there is a charge to corporation tax under regulation 69Z12) (a “specified breach”), this Part shall continue to apply to the company despite the breach (but see paragraph (3) and regulation 69Z8).

(3) If there are three specified breaches in a period of ten years beginning with the first day of the accounting period in which the first specified breach occurs, the Commissioners may give a termination notice to the company.

Breach of the loan creditor conditionU.K.

69Z6.—(1) This regulation applies if an open-ended investment company to which this Part applies is in breach of the loan creditor condition.

(2) If the company is inadvertently in breach of the loan creditor condition but rectifies the breach within a period of 28 days beginning with the day on which the company first becomes aware of the breach, this Part shall continue to apply to the company despite the breach (but see paragraphs (5) and (6) and regulation 69Z8).

(3) If the company is inadvertently in breach of the loan creditor condition but does not rectify the breach within a period of 28 days beginning with the day on which the company first becomes aware of the breach, the Commissioners may give a termination notice to the company.

(4) If the company is intentionally or negligently in breach of the loan creditor condition, the Commissioners may give a termination notice to the company.

(5) If the company is in breach of the same condition specified in paragraphs (2) to (5) of regulation 69M in two different accounting periods in a period of ten years beginning with the first day of the accounting period in which the company becomes aware of the first of those breaches, the Commissioners may give a termination notice to the company.

(6) If the company is in breach of the conditions specified in paragraphs (2) to (5) of regulation 69M in three different accounting periods in a period of ten years beginning with the first day of the accounting period in which the company becomes aware of the first of those breaches, the Commissioners may give a termination notice to the company.

Breach of balance of business conditionsU.K.

69Z7.—(1) Paragraph (2) applies if a newly qualified company—

(a)is in breach of condition A set out in regulation 69N(2)(a) in its first accounting period, or

(b)is in breach of condition B set out in regulation 69N(3)(a) at the end of its first accounting period.

(2) This Part shall cease to apply to the company at the end of its first accounting period and regulation 69Z41 shall apply.

(3) Paragraphs (4) to (7) apply if an open-ended-investment company to which this Part applies—

(a)is in breach of condition A set out in regulation 69N(2)(b) in an accounting period, or

(b)is in breach of condition B set out in regulation 69N(3)(b) at the end of an accounting period.

(4) If the conditions specified in paragraph (6) are met, this Part shall continue to apply to the company despite the breach (but see paragraph (7) and regulation 69Z8).

(5) If the conditions specified in paragraph (6) are not met, the Commissioners may give a termination notice to the company.

(6) The conditions are that—

(a)property investment business is at least 50% of the company’s net income in the accounting period,

(b)the value of the assets involved in property investment business is at least 50% of the total value of assets held by the company at the end of the accounting period.

(7) If this regulation applies to a company in three different accounting periods in a period of ten years beginning with the first day of the accounting period in which the company becomes aware of the first of those breaches, the Commissioners may give a termination notice to the company.

Multiple breaches of separate conditionsU.K.

69Z8.—(1) This regulation applies in relation to an open-ended investment company to which this Part applies if—

(a)there has been a breach of at least two of the conditions in [F31regulation 9A or] regulations 69E to 69N,

(b)at least one of the conditions breached is contained in a different regulation from that containing another of those breached, and

(c)there have been five breaches in a period of ten years beginning with the first day of the accounting period in which the first breach occurs.

(2) The Commissioners may give a termination notice to the company.

Further provisionsU.K.

Profit/financing costs in the case of a Property AIF that is a qualified investor schemeU.K.

69Z9.—(1) This regulation applies if conditions A and B are met.

(2) Condition A is that an open-ended investment company to which this Part applies is a qualified investor scheme.

(3) Condition B is that the result of the following calculation is less than 1.25 in respect of an accounting period—

(4) In paragraph (3)—

“Income” means the amount of the net income of F (tax-exempt) arising in the accounting period (before the offset of capital allowances, of losses from a previous accounting period, and of amounts taken into account under regulation 69Z1(3)), and

“Financing Costs” means the amount of the financing costs incurred in that period in respect of the business of F (tax-exempt).

(5) An amount shall be charged to corporation tax.

(6) That amount is determined as follows—

• Step One

  Determine the financing costs which, given the actual income, would produce the result of 1.25 in the calculation specified in paragraph (3) (the “theoretical financing costs”).

• Step Two

  Determine the amount by which the actual financing costs exceed the theoretical financing costs (“the excess financing cost”).

• Step Three

  Divide the main rate at which corporation tax is charged for the accounting period by the rate at which corporation tax is charged on an open-ended investment company for the accounting period (see section 468A(1) of ICTA) to determine the multiplier.

• Step Four

  Multiply the excess financing cost by the multiplier.

The result is the amount charged to tax.

(7) For the purposes of paragraphs (3) and (4) “financing costs” are the costs of debt finance; and in calculating the costs of debt finance in respect of an accounting period the matters to be taken into account include—

(a)costs giving rise to debits in respect of debtor relationships of the company under Chapter 2 of Part 4 of FA 1996 (loan relationships), other than debits in respect of exchange losses from such relationships (within the meaning of section 103(1A) and (1B) of that Act),

(b)any exchange gain or loss from a debtor relationship within the meaning of that Chapter in relation to debt finance,

(c)any credit or debit falling to be brought into account under Schedule 26 to FA 2002 (derivative contracts) in relation to debt finance,

(d)the financing cost implicit in a payment under a finance lease, and

(e)any other costs arising from what would be considered, in accordance with generally accepted accounting practice, to be a financing transaction.

(8) No loss, deficit, expense or allowance may be set off against the amount charged to tax by paragraph (5).

Cancellation of tax advantageU.K.

69Z10.—(1) This regulation applies if a company to which this Part applies has tried to obtain a tax advantage for itself or another person.

(2) The Commissioners may give a notice to the company specifying the tax advantage.

(3) If the Commissioners give a notice to the company under paragraph (2) a tax advantage obtained by the company shall be counteracted, in accordance with the notice, by an adjustment by way of—

(a)an assessment;

(b)the cancellation of a right of repayment;

(c)a requirement to return a repayment already made; or

(d)the computation or recomputation of profits or gains, or liability to tax, on a basis specified by the Commissioners in the notice.

(4) The Commissioners may (in addition to the adjustment under paragraph (3)) assess the company to such additional amount of income tax under Case VI of Schedule D as they think is equivalent to the value of the tax advantage.

(5) For the purposes of this regulation “tax advantage” has the meaning given by section 709 of ICTA.

(6) But a company does not obtain a tax advantage by reason only of this Part applying to it, unless it does anything (whether before or during the application of this Part) which is wholly or principally designed to create or inflate or apply a loss, deduction or expense (whether or not suffered or incurred by the company).

Appeal against notice under regulation 69Z10U.K.

69Z11.—(1) If a notice is given to a company under regulation 69Z10, the company may appeal F32....

(2) The notice of appeal must be given to HM Revenue and Customs within a period of 28 days beginning with the day on which the notice under regulation 69Z10 is given.

(3) On an appeal [F33that is notified to the tribunal, the tribunal] may—

(a)affirm, vary or cancel the notice, and

(b)affirm, vary or quash an assessment made under regulation 69Z10(4).

Distribution to holder of excessive rights: charge to taxU.K.

69Z12.—(1) This regulation applies if an open-ended investment company to which this Part applies—

(a)makes a distribution to, or in respect of, a holder of excessive rights (see regulation 69Z13), and

(b)the company has not taken reasonable steps to prevent the possibility of such a distribution being made.

(2) The company is treated as having received an amount of income calculated in accordance with paragraph (3).

(3) The amount of the income is determined by the formula—

• I  x  P

(4) In paragraph (3)—

I is the net income of F (tax-exempt) distributable in accordance with regulation 69Z14(a);

P is the percentage of the rights to the net asset value of the company held by, or on behalf of, the holder of excessive rights.

(5) The amount determined in accordance with paragraph (3) shall be charged to corporation tax as if it were income of F (residual) chargeable under Case VI of Schedule D arising in the accounting period in which the distribution mentioned in paragraph (1) was made by the company.

(6) No loss, deficit, expense or allowance may be set off against the amount charged to tax by paragraph (5).

Meaning of “holder of excessive rights”U.K.

69Z13.—(1) In this Part a “holder of excessive rights” means a body corporate which—

(a)is a participant in an open-ended investment company to which this Part applies, and

(b)is beneficially entitled to shares representing rights to 10% or more of the net asset value of the company.

(2) Paragraphs (4) and (5) of regulation 69L apply for the purposes of paragraph (1) as they apply for the purposes of regulation 69K.

(3) In this Part an “excessive holding” means the holding of a holder of excessive rights.

CHAPTER 4U.K.DISTRIBUTIONS MADE BY PROPERTY AIFS

[F34Allocation of income]U.K.

69Z14.  [F35The total amount available for income allocation in an open-ended investment company to which this Part applies shall be attributed]—

(a)first, to property income distributions up to the amount of the net income of F (tax-exempt) (determined in accordance with regulation 69Z1),

(b)secondly, to PAIF distributions (interest) up to the pre-distribution amount (determined in accordance with regulation 69Z3), and

(c)finally, to PAIF distributions (dividends).

Property income distributionsU.K.

69Z15.—(1) This regulation applies if—

(a)an open-ended investment company to which this Part applies makes a distribution, and

(b)the amount distributed includes sums attributed to property income distributions.

(2) The Tax Acts shall have effect as if the sums were payments made on the distribution date by the company to the participants in proportion to their rights.

(3) Regulation 69Z18 (property income distributions: liability to tax of participants) explains how a property income distribution received by a participant is treated.

(4) In these Regulations a “property income distribution” means a sum attributed to property income distributions which is distributed (including a payment made to a participant who is not chargeable to income tax or corporation tax).

PAIF distributions (interest)U.K.

69Z16.—(1) This regulation applies if—

(a)an open-ended investment company to which this Part applies makes a distribution, and

(b)the amount distributed includes sums attributed to PAIF distributions (interest).

(2) The Tax Acts shall have effect as if the sums were payments of yearly interest made on the distribution date by the company to the participants in proportion to their rights.

[F36(2A) For the purposes of Part 10 (Corporate Interest Restriction) of TIOPA 2010, a PAIF distribution (interest) is treated as not being a tax-interest expense amount of the company.]

(3) In this Part a “PAIF distribution (interest)” means a sum attributed to PAIF distributions (interest) which is distributed (including a payment made to a participant who is not chargeable to income tax).

PAIF distributions (dividends)U.K.

69Z17.—(1) This regulation applies if—

(a)an open-ended investment company to which this Part applies makes a distribution, and

(b)the amount distributed includes sums attributed to PAIF distributions (dividends).

(2) The Tax Acts shall have effect as if the sums were dividends on shares paid on the distribution date by the company to the participants in proportion to their rights.

(3) In this Part a “PAIF distribution (dividends)” means a sum attributed to PAIF distributions (dividends) which is distributed (including a dividend treated as paid to a participant who is not chargeable to corporation tax).

CHAPTER 5U.K.THE TREATMENT OF PARTICIPANTS IN PROPERTY AIFS

Treatment of distributions: liability to tax of participantsU.K.

Property income distributions: liability to tax of participantsU.K.

69Z18.—(1) A property income distribution received by a participant in an open-ended investment company to which this Part applies shall be treated—

(a)in the case of a participant within the charge to corporation tax, as profits of a Schedule A business, and

(b)in the case of a participant within the charge to income tax, as the profits of a UK property business (within the meaning of section 264 of ITTOIA 2005).

(2) A distribution received by a participant who is not resident in the United Kingdom—

(a)if the participant is a company within the charge to corporation tax, shall be chargeable to tax as profits of a Schedule A business,

(b)if the participant is a person other than a company within the charge to corporation tax, shall be chargeable to tax as profits of a UK property business (within the meaning of section 264 of ITTOIA 2005), and

(c)in either case shall not be chargeable to tax by virtue of sections 971 and 972 of ITA 2007 (non-resident landlords).

(3) Paragraph (1) shall not apply in relation to a participant if and in so far as the participant—

(a)is a dealer in respect of distributions (within the meaning of section 95 of ICTA),

(b)is a dealer in securities who is charged to tax under Part 2 of ITTOIA 2005 (trading income) in respect of distributions made by companies,

(c)is an individual member of Lloyd’s (within the meaning given by section 184(1) of FA 1993) and the distribution is made in respect of assets forming part of—

(i)a premium trust fund of his (within the meaning given by section 174 of FA 1993), or

(ii)an ancillary trust fund of his (within the meaning given by section 176 of FA 1993), or

(d)is a corporate member of Lloyd’s (within the meaning given by section 230(1) of FA 1994) and the distribution is made in respect of assets forming part of—

(i)a premium trust fund of his (within the meaning given by section 222 of FA 1994), or

(ii)an ancillary trust fund of his (within the meaning given by section 223 of FA 1994).

(4) Section 114(1)(a) of ICTA (partnerships with companies as members) does not disapply paragraph (1).

(5) Sections 231 of ICTA and 397 of ITTOIA 2005 (tax credits in respect of qualifying distributions) shall not apply to property income distributions.

(6) Property income distributions received by one participant acting in one capacity shall be treated, for the purposes of paragraph (1), as the profits of a single business which is separate from—

(a)any other Schedule A business carried on by the participant,

(b)any other UK property business (within the meaning of section 264 of ITTOIA 2005) carried on by the participant,

(c)any overseas property business (within the meaning of section 70A(4) of ICTA) carried on by the participant, and

(d)any overseas property business (within the meaning of section 265 of ITTOIA 2005) carried on by the participant.

(7) In the case of a participant which is a partnership, paragraph (6) applies to receipts by a partner of a share of any distribution as it applies to receipts by a participant.

PAIF distributions (interest): liability to tax of participantsU.K.

69Z19.—[F37(1) A PAIF distribution (interest) received by a participant in an open-ended investment company to which this Part applies shall be treated—

(a)in the case of a participant within the charge to corporation tax, as if it were interest arising from a loan relationship; and

(b)in the case of a participant within the charge to income tax, as if it were a payment of yearly interest falling within Chapter 2 of Part 4 of ITTOIA 2005.]

(2) Sections 231 of ICTA and 397 of ITTOIA 2005 (tax credits in respect of qualifying distributions) shall not apply to PAIF distributions (interest).

Property distributions (dividends): liability to tax of participantsU.K.

69Z20.—(1) A PAIF distribution (dividends) received by a participant in an open-ended investment company to which this Part applies shall be treated as if it were a dividend on shares.

(2) If a PAIF distribution (dividends) is made for a distribution period to a participant chargeable to corporation tax, regulations 48 to 52A shall not apply to the distribution.

Distributions made after cessationU.K.

69Z21.—(1) This regulation applies if an open-ended investment company—

(a)is a company to which this Part applies in respect of an accounting period,

(b)makes a distribution in respect of that accounting period, and

(c)the distribution is made after cessation.

(2) Regulations 69Z18 to 69Z20 apply in relation to the distribution.

Deduction of tax from distributionsU.K.

Deduction of tax from property income distributionsU.K.

69Z22.—(1) On making a property income distribution, an open-ended investment company to which this Part applies must deduct a sum representing income tax at the basic rate in force for the tax year in which the distribution date falls.

(2) A property income distribution shall be treated as having been received by the participant after deduction of income tax at the basic rate for the year of assessment in which the distribution date falls, from a corresponding gross amount.

(3) The sum is accordingly taken into account under sections 59B and 59D of TMA 1970 (see also paragraph 8 of Schedule 18 to the Finance Act 1998) in determining the income tax or corporation tax payable by, or repayable to, the participant.

(4) This regulation is subject to regulation 69Z24 (distribution payments to be made without deduction of tax).

Deduction of tax from PAIF distributions (interest)U.K.

69Z23.—(1) On making a PAIF distribution (interest), an open-ended investment company to which this Part applies must deduct a sum representing income tax at the [F38basic rate] in force for the tax year in which the PAIF distribution (interest) is made.

(2) Accordingly, the sum is one to which section 874 of ITA 2007 applies.

F39(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) This regulation is subject to regulation 69Z24 (distribution payments to be made without deduction of tax).

Distribution payments to be made without deduction of taxU.K.

69Z24.—(1) [F40Subject to paragraphs (3A) and (3B),] on making a distribution, an open-ended investment company to which this Part applies must not deduct any sum representing income tax if the company reasonably believes that conditions A and B are met.

(2) Condition A is that if the distribution were made by a UK-REIT out of the profits of C (tax-exempt), the distribution would be required to be made without any deduction representing income tax.

(3) Condition B is that if the distribution were a distribution of yearly interest, the distribution would be required to be made without any deduction representing income tax.

[F41(3A) But neither condition A nor condition B is met, in relation to a unit trust scheme, where—

(a)the distribution is made to the trustee of the scheme;

(b)the trustee is chargeable to corporation tax or income tax on the distribution in the United Kingdom; and

(c)the trustee has made a request in writing to the Property AIF that the Property AIF should deduct tax from the distribution.

(3B) The Property AIF must not specify that the trustee of any unit trust scheme seeking to acquire shares in the Property AIF must have tax deducted from any distribution.]

(4) If at the time it makes a distribution the company reasonably believes that conditions A and B are met, but in fact those conditions are not both met, these Regulations shall apply to the distribution as if it were never one which could be made without deduction of tax.

(5) In paragraph (2) “profits of C (tax-exempt)” shall be construed in accordance with Part 4 of FA 2006.

[F42Manufactured dividends representing property income distributionsU.K.

69Z24A.—(1) This regulation applies to the extent that a manufactured dividend which is paid by a dividend manufacturer is representative of property income distributions to which regulation 69Z15 applies.

(2) The amount of the manufactured dividend falling within paragraph (1) is referred to in this regulation as “the manufactured PID amount”.

(3) The recipient of the manufactured PID amount is treated as having received a distribution to which regulation 69Z18 applies.

(4) In relation to the dividend manufacturer—

(a)if the dividend manufacturer is a company and the manufactured dividend is paid in the course of a trade carried on in the United Kingdom, the manufactured PID amount shall be treated as an expense of the trade;

(b)if the manufactured dividend is paid in connection with investment business, the manufactured PID amount shall be treated for the purposes of section 75 of ICTA as expenses of management; and

(c)in the case of a company carrying on life assurance business, so much of the manufactured PID amount as would be referable by virtue of section 432A of ICTA to basic life assurance and general annuity business if it were received by the company shall be treated for the purposes of section 76 of ICTA as if it were an expense payable falling to be brought into account at step 3 of section 76(7).

(5) Regulations 69Z22, 69Z24 and 69Z29 to 69Z35 apply to the dividend manufacturer as if—

(a)the dividend manufacturer were an open-ended investment company to which this Part applies; and

(b)the manufactured PID amount were a distribution to which those regulations apply.]

[F42Manufactured dividends representing PAIF distributions (interest)U.K.

69Z24B.—(1) This regulation applies to the extent that a manufactured dividend which is paid by a dividend manufacturer is representative of a PAIF distribution (interest) to which regulation 69Z16 applies.

(2) The amount of the manufactured dividend to which this regulation applies is referred to in this regulation as the “manufactured PAIF interest amount”.

(3) If the recipient of the manufactured dividend is a company within the charge to corporation tax it is treated as having received, in relation to the manufactured PAIF interest amount, an amount to which section 97 of FA 1996 applies.

(4) If the recipient of the manufactured dividend is within the charge to income tax it is treated as having received, in relation to the manufactured PAIF interest amount, an amount to which regulation 69Z19 applies.

(5) If the dividend manufacturer is a company within the charge to corporation tax, section 97 of FA 1996 is treated as applying to the manufactured PAIF interest amount.

(6) Regulations 69Z23, 69Z24 and 69Z29 to 69Z35 apply to the dividend manufacturer in relation to the manufactured PAIF interest amount as if the dividend manufacturer were an open-ended investment company to which this Part applies.]

[F42Manufactured dividends – PAIF distributions (dividends)U.K.

69Z24C.—(1) This regulation applies to the extent that a manufactured dividend which is paid by a dividend manufacturer is representative of a PAIF distribution (dividends) to which regulation 69Z17 applies.

(2) The recipient of the manufactured dividend is treated as having received, to that extent, an amount to which regulation 69Z20 applies.

(3) If the dividend manufacturer is a company, paragraph 2(2)(b) of Schedule 23A to ICTA has effect in relation to the amount of the manufactured dividend to which paragraph (1) applies.]

[F42InterpretationU.K.

69Z24D.  In regulations 69Z24A to 69Z24C, “manufactured dividend” and “dividend manufacturer” have the meanings given by Schedule 23A to ICTA .]

[F43Conversions and exchangesU.K.

Conversion to property AIFU.K.

69Z24E.—(1) This regulation applies if—

(a)a fund (“the pre-conversion fund”) which is not a property AIF becomes, or intends to become, a property AIF,

(b)the unit-holders in the pre-conversion fund dispose of the units which they hold in that fund (“the original units”) and, as part of an arrangement, acquire units of the same, or substantially the same, value as the original units in the fund which is, or is intended to become, the dedicated feeder fund for the property AIF, and

(c)the further requirement of regulation 69Z24G is met.

(2) Sections 127 to 131 of TCGA apply in relation to the disposal and subsequent acquisition of units specified in this regulation.

(3) A fund converting to a property AIF in accordance with this regulation shall be treated as meeting condition A in regulation 69K (the corporate ownership condition) where the conditions in paragraph (4) are met, notwithstanding that the holding of a body corporate in the property AIF may exceed the percentage mentioned in regulation 69K(3)(a) during the relevant period.

(4) The conditions in this paragraph are that—

(a)during the relevant period, no distributions are declared or made,

(b)any distribution which was declared before the beginning of the relevant period is paid before the beginning of that period, and

(c)the units held by the body corporate in the property AIF are exchanged for units in the dedicated feeder fund as soon as reasonably practicable.

(5) In this regulation, “the relevant period” is the period beginning with the time at which the fund becomes a property AIF and ending with the time at which the units in the dedicated feeder fund for the property AIF are issued to a participant which is a body corporate.

Exchange of unitsU.K.

69Z24F.—(1) This regulation applies if—

(a)there is—

(i)an exchange of units in a dedicated feeder fund for shares in the property AIF for which that fund is the dedicated feeder fund, or

(ii)an exchange of shares in a property AIF for units in the dedicated feeder fund for that property AIF, and

(b)the further requirement of regulation 69Z24G is met.

(2) The units to be exchanged in accordance with either paragraph (1)(a) or (b) must represent the same, or substantially the same, share of the net asset value of the property AIF as the units which are held immediately after the exchange.

(3) Sections 127 to 131 of TCGA 1992 apply in relation to a disposal or acquisition of units or shares specified in paragraph (1).

Further requirementU.K.

69Z24G.  The further requirement is that if a transaction involves the acquisition of units in a dedicated feeder fund, that it is undertaken with the agreement of the manager of the property AIF.

Application of section 137 of TCGAU.K.

69Z24H.  Section 137 of TCGA (restriction on application of tax treatment) applies to any transaction specified in regulations 69Z24E or 69Z24F in the circumstances mentioned in that section.]

CHAPTER 6U.K.COMPLIANCE IN RELATION TO THE PROPERTY AIF REGIME

Company tax returnU.K.

Documents to be included with company tax returnU.K.

69Z25.—(1) An open-ended investment company to which this Part applies must include documents A and B in its company tax return.

(2) Document A is a calculation of the net income of F(tax-exempt) and F(residual) in accordance with regulations 69Z1 to 69Z3.

(3) Document B is a reconciliation between—

(a)the net income of the company (see regulation 69Z), and

(b)[F44the total amount available for income allocation] as attributed in accordance with regulation 69Z14.

(4) In paragraph (1) “company tax return” means the return required to be delivered pursuant to a notice under paragraph 3 of Schedule 18 to the Finance Act 1998, as read with paragraph 4 of that Schedule.

(5) Section 98 of TMA 1970 applies to any failure to furnish any information, give any certificate or produce any document or record in accordance with any provision of this Chapter as it applies to any such failure in the case of any provision specified in the second column of the Table below that section.

Breaches of conditions in Chapter 2U.K.

Information to be provided by company to which this Part appliesU.K.

69Z26.—(1) This regulation applies if an open-ended investment company to which this Part applies—

(a)does not meet a condition set out in Chapter 2 of this Part (entry into and membership of the Property AIF regime), and

(b)becomes aware that it does not meet the condition.

(2) As soon as reasonably practicable, the company must provide the following information to the Commissioners—

(a)the date on which the condition first ceased to be met and the date (if any) on which the condition was satisfied again;

(b)details of the condition that was breached;

(c)the nature of the breach; and

(d)what (if anything) the company has done to prevent the breach recurring.

(3) This regulation does not apply if the breach of condition is one to which regulation 69Z27 applies.

Holders of excessive rightsU.K.

Information relating to holders of excessive rightsU.K.

69Z27.—(1) This regulation applies if an open-ended investment company to which this Part applies becomes aware that it has made a distribution to, or in respect of, a holder of excessive rights.

(2) As soon as reasonably practicable, the company must provide the following information to the Commissioners—

(a)the name of every person to whom, or in respect of whom, the distribution specified in paragraph (1) was made;

(b)the address of every such person;

(c)the amount or value of the distribution;

(d)particulars of those persons’ interests in the company, including details of the percentage of rights to the net asset value of the company represented by the shares held by those persons;

(e)the steps the company took to prevent the acquisition of any excessive holding; and

(f)the steps the company has taken, or is taking, to ensure that there is no longer any excessive holding in the company.

Information about possible breaches of conditions of membership of Property AIF regimeU.K.

Information to be provided to officers of Revenue and CustomsU.K.

69Z28.—(1) This regulation applies if an officer of Revenue and Customs thinks that an open-ended investment company to which this Part applies—

(a)does not meet, or may not meet, a condition specified in Chapter 2 of this Part, or

(b)has not rectified a breach of such a condition.

(2) The officer may serve a notice on the manager of the company.

(3) The notice may require the manager to provide any of the information specified in regulation 69Z26(2) or, as the case may be, regulation 69Z27(2).

(4) The manager must comply with the notice within a period of 28 days beginning with the day on which the notice is served.

Accounting for tax deducted from property income distributionsU.K.

Payments in an accounting periodU.K.

69Z29.—(1) This regulation applies if—

(a)an open-ended investment company to which this Part applies makes a distribution in an accounting period of the company, and

(b)the distribution includes sums attributed to property income distributions or to PAIF distributions (interest) (or to both) (referred to in this Chapter as a “relevant distribution”).

(2) The company must deliver a return to an officer of Revenue and Customs for each return period—

(a)which falls within the accounting period, and

(b)in which the company makes a relevant distribution.

(3) The return periods are—

(a)the quarters ending on 31st March, 30th June, 30th September and 31st December (the “quarter days”); and

(b)any shorter period which—

(i)starts on the first day of an accounting period and ends with the first or only quarter day in that accounting period;

(ii)begins immediately after the last or only quarter day in that accounting period and ends on the last day of that accounting period; or

(iii)is an accounting period which starts and ends within a quarter.

(4) The company must deliver the return during a period of 14 days beginning with the day immediately following the end of the return period.

(5) The return must show the amount of—

(a)any relevant distributions made by the company in the return period, and

(b)the tax (if any) payable by the company in respect of those payments.

(6) The company must deliver, with the return for the return period which ends on the last day of an accounting period, a reconciliation statement showing, in relation to any distribution made during the accounting period, the amounts (if any) which are attributable to each of paragraphs (a) to (c) of regulation 69Z14 (attribution of distributions).

Collection and payment of taxU.K.

69Z30.—(1) Tax in respect of a relevant distribution is due at the time by which the return on which the distribution must be included is required to be delivered.

(2) The tax due is equal to the sum which the company is required to deduct from the relevant distribution under—

(a)regulation 69Z22(1) (deduction of tax from property income distributions), and

(b)regulation 69Z23(1) (deduction of tax from PAIF distributions (interest)).

(3) The tax is due from the company making the relevant distribution.

(4) The tax is payable without an officer of Revenue and Customs making any assessment.

Assessments where relevant distribution included in returnU.K.

69Z31.—(1) This regulation applies if any tax in respect of a relevant distribution which is included in a return under this Chapter has not been paid at or before the time mentioned in regulation 69Z30.

(2) An officer of Revenue and Customs may make an assessment on the person who made the relevant distribution.

(3) Tax may be assessed under this regulation whether or not it has been paid when the assessment is made.

Assessments in other casesU.K.

69Z32.—(1) This regulation applies if an officer of Revenue and Customs thinks—

(a)that there is a relevant distribution which should have been included in a return under this Chapter and which has not been so included, or

(b)that a return under this Chapter is otherwise incorrect.

(2) An officer of Revenue and Customs may make an assessment on the person who made the relevant distribution to the best of the officer’s judgement.

Application of Income Tax Acts provisions about time limits for assessmentsU.K.

69Z33.—(1) The provisions of the Income Tax Acts about the time within which an assessment may be made apply to assessments under this Chapter, so far as those provisions refer or relate to—

(a)the tax year for which an assessment is made, or

(b)the year to which an assessment relates.

(2) Paragraph (1) applies despite the fact that an assessment under this Chapter may relate to a return period which is not a tax year.

(3) The provisions of section 36 of TMA 1970 (fraudulent or negligent conduct) about the circumstances in which an assessment may be made out of time apply accordingly on the basis that any such assessment relates to the tax year in which the return period ends.

(4) Section 87 of TMA 1970 (interest on overdue income tax deducted at source) applies for the purposes of a payment due under regulation 69Z30 or an assessment made under regulation 69Z31 or 69Z32.

[F45Certificates of deduction of taxU.K.

69Z34.—(1)  A company making a relevant distribution which is subject to deduction of tax by virtue of regulation 69Z22(1) must furnish the recipient with a statement that complies with condition A or B.

This is subject to paragraph (5).

(2) The duty imposed by paragraph (1) is enforceable at the suit or instance of the recipient.

(3) Condition A is that the statement is in writing showing—

(a)the gross amount of the payment,

(b)the amount of tax deducted, and

(c)the actual amount paid.

(4) Condition B is that the statement is in writing—

(a)showing—

(i)the gross amount of the distribution made to the participant,

(ii)the number and class of units held by the participant in respect of which the distribution is made,

(iii)the net amount of the distribution per unit,

(iv)whether any tax has been deducted from the distribution, and

(v)the date the distribution was made;

(b)providing details to allow the participant to access an electronic means of calculating the amounts that would be shown in a statement provided in accordance with condition A; and

(c)providing the participant with an alternative method of obtaining the details of those amounts without recourse to electronic means.

(5) If an appropriate statement for the purposes of section 234A of ICTA is provided by the company in accordance with regulation 70(4) and (5)—

(a)condition A does not apply, and

(b)the statement required by condition B must be included in the appropriate statement.

(6) Where paragraph (5) applies, “distribution” in regulation 70(4) and (5) shall be taken to include the property income distribution and the statement must show the percentage of the gross distribution attributable to the property income distribution.]

Company’s duty to deliver amended returnU.K.

69Z35.—(1) This regulation applies if an open-ended investment company to which this Part applies makes a distribution, and then becomes aware that—

(a)anything which should have been included in a return delivered by the company under these Regulations has not been so included,

(b)anything which should not have been included in a return delivered by the company under these Regulations has been so included, or

(c)any other error has occurred in a return delivered by the company under these Regulations.

(2) The company must deliver an amended return correcting the error to an officer of Revenue and Customs without delay.

(3) If the company delivers an amended return such assessments, adjustments, setoffs or payments or repayments of tax as are necessary for achieving the objective mentioned in paragraph (4) must be made.

(4) The objective is that the resulting liabilities to income and corporation tax (including interest on unpaid or overpaid tax) of the company or any other person are the same as they would have been if a correct return had been delivered.

CHAPTER 7U.K.LEAVING THE PROPERTY AIF REGIME

Termination by notice: companyU.K.

69Z36.—(1) This regulation applies if an open-ended investment company to which this Part applies gives a notice under this regulation specifying a date at the end of which this Part is to cease to apply to the company.

(2) This Part shall cease to apply to the company at the end of that date.

(3) A notice under paragraph (1) must be given in writing to the Commissioners.

(4) The date specified under paragraph (1) must be after the date on which the Commissioners receive the notice.

Termination by notice: CommissionersU.K.

69Z37.—(1) This regulation applies if the Commissioners give a notice in writing under this paragraph to an open-ended investment company to which this Part applies (a “termination notice”).

(2) This Part shall cease to apply to the company.

(3) The Commissioners may give a termination notice only if—

(a)a provision contained in this Part provides that the Commissioners may give a termination notice,

(b)there is an intentional or negligent breach of a condition in Chapter 2, or

(c)there is an attempt to gain a tax advantage to which regulation 69Z10 applies.

(4) A termination notice must state the reason for it.

(5) If a termination notice is given to an open-ended investment company, this Part shall be taken to have ceased to apply to the open-ended investment company at the end of the accounting period before the accounting period during which the event occurs (or the last event occurs) which caused the Commissioners to give the notice.

Appeal against termination noticeU.K.

69Z38.—(1) An open-ended investment company to which a termination notice is given may appeal F46....

(2) The notice of appeal must be given to HM Revenue and Customs within a period of 28 days beginning with the day on which the termination notice is given.

(3) On an appeal [F47that is notified to the tribunal, the tribunal] shall determine whether it was just and reasonable for HM Revenue and Customs to give the termination notice.

(4) If [F48the tribunal decides] that it was, [F49the tribunal must] confirm the notice.

(5) If [F48the tribunal decides] that it was not, [F49the tribunal must] set aside the notice.

Company ceasing to be authorised etc.U.K.

69Z39.—(1) This regulation applies if an open-ended investment company to which this Part applies—

(a)ceases to be authorised by the Financial Services Authority,

(b)ceases to be an open-ended investment company, or

(c)ceases to carry on property investment business.

(2) This Part shall cease to apply to the company at the end of the date on which the company ceases to be authorised by the Financial Services Authority, to be an open-ended investment company, or to carry on property investment business (as the case may be).

MergersU.K.

69Z40.—(1) This regulation applies if an open-ended investment company to which this Part applies—

(a)is party to a merger or takeover, and

(b)as a result, ceases to meet one or more of the conditions for this Part to apply.

(2) On the occurrence of the merger or takeover—

(a)an accounting period of the company shall end at the end of the date of the merger or takeover, and

(b)this Part shall cease to apply to the company at the end of that date.

Effects of cessationU.K.

69Z41.—(1) The business of F (tax-exempt) shall be treated for the purposes of corporation tax as ceasing immediately before cessation.

(2) Assets which immediately before cessation are involved in the business of F (tax-exempt) shall be treated for the purposes of corporation tax as being sold by F (tax-exempt) immediately before cessation and reacquired immediately after cessation by F (post-cessation).

(3) For the purposes of corporation tax, on cessation one accounting period of F (residual) shall end and an accounting period of F (post-cessation) shall begin.

(4) The sale and reacquisition deemed under paragraph (2) shall not have effect for the purposes of tax in respect of chargeable gains.

(5) For the purposes of CAA 2001, the sale and re-acquisition deemed under paragraph (2)—

(a)shall not give rise to allowances or charges, and

(b)shall not make it possible to make an election under section 198 or 199 of that Act (apportionment).

(6) For the purposes of CAA 2001, anything done by or to F (tax-exempt) before cessation in relation to an asset which is deemed under paragraph (2) to be sold and re-acquired shall be treated after cessation as having been done by or to F (post-cessation).]