Introduction of a new “Reserved Investor Fund” or “RIF”

What is a RIF?

A RIF takes the form of a contractual scheme. It is formed under a contract between the investors in the RIF (who beneficially own the assets of the RIF), a depositary (that owns legal title to the assets) and an operator (that will manage the assets in accordance with the terms of the contract). The RIF is modeled on the existing co-ownership authorized contractual scheme (Co-ACS), introduced in 2013 – with the key difference being that the RIF is not itself authorized by the FCA (although the manager must be authorized or registered under the Alternative Investment Fund Managers Regulations 2013 (as amended). In many ways, it is similar to a Luxembourg Reserved Alternative Investment Fund (RAIF) Fonds Commun de Placement (FCP) and an Irish common contractual fund. A RIF must qualify as an alternative investment fund and can only be sold to professional or large investors.

What is the UK tax position?

Where conditions are met, the RIF is expected to be transparent for income tax, generally exempt from capital gains tax, no stamp taxes on transfers of units in the RIF and seeding relief on transfer of property, shares and securities in consideration for the issue of RIF units. The RIF is a UK onshore structure, and as such is managed from the UK.

We may then see existing CoACS moving into the RIF regime and away from authorized status, and it may be a good vehicle for certain joint ventures or club deals that intend to invest primarily in UK real estate. It may also offer a good alternative to the Exempt Unauthorised Unit Trust for certain qualifying pension funds.

Management of a RIF will be subject to the usual Value Added Tax (VAT) rules, and so management fees are generally expected to be subject to UK VAT at the standard rate.

What are the key conditions?

• RIFs must be a UK-based AIF.
• RIFs must satisfy an ownership requirement. This requires that they must either meet a genuine diversity of ownership requirement or a non-close requirement (with broad safe harbors where investors are qualifying institutions).
• RIFs must meet one of three “restriction conditions” in order to be treated as tax-transparent for most direct tax purposes:
  • The investors are restricted to those that are exempt from tax on capital gains, otherwise than by reason of residence.
  • Substantially all the scheme property is UK real estate.
  • The scheme property does not include UK real estate.

Comment

The new RIF is a welcome addition to the UK investment funds offering, particularly in the context of UK real estate that is held by UK pension funds.

Podcast

In the latest edition of our podcast series, Let’s talk asset management, Claire Guilbert, Hannah Meakin, Lucy Dodson and Simon Lovegrove discuss the similarities and differences between the RAIF and the RIF.