Policy paper

Amendments to the Genuine Diversity of Ownership (GDO) condition

Published 15 March 2023

Who is likely to be affected

Certain investment vehicles which cannot currently satisfy the genuine diversity of ownership (GDO) condition for the purposes of the Qualifying Asset Holding Companies (QAHC), Real Estate Investment Trust (REIT) and Non-Resident Capital Gains (NRCG) rules.

General description of the measure

The GDO condition is used across a range of tax regimes with the purpose of preventing investment funds that are only open to a small number of predetermined investors from benefitting from those regimes.

This measure makes amendments to the GDO condition contained in the QAHC, REIT and NRCG rules. The amendments provide that where an individual investment entity forms part of a wider fund arrangement, that entity can satisfy the GDO condition by reference to the arrangements as a whole (even if the individual entity would not satisfy the GDO condition when considered in isolation).

Policy objective

Investment fund structures may involve two or more separate legal entities which, in substance, form part of the same arrangement.

Under current law, the GDO condition must be applied to each entity within a fund structure in isolation. This can mean that a particular entity does not satisfy the GDO condition, despite the fact that it forms part of a wider arrangement which, taken as a whole, would meet the relevant requirements.

The changes being made by this measure provide that, for the purposes of the QAHC, REIT and NRCG rules, where an entity forms part of multi-vehicle arrangements, the GDO condition can be treated as satisfied by the entity if it is met in relation to the multi-vehicle arrangements. The definition of multi-vehicle arrangements encompasses a group of entities which form part of a wider fund structure where an investor would reasonably regard their investment to be in the structure as a whole.

Background to the measure

At Budget 2020, the government announced that it would carry out a review of the UK funds regime, covering tax and relevant areas of regulation. As part of that review, in December 2022 the government commenced a review of the GDO condition, to be undertaken in consultation with a working group comprised of industry stakeholders.

The NRCG rules were introduced in Finance Act 2019 and came into effect from 6 April 2019.

The GDO condition was introduced for particular purposes into the REIT rules in Finance Act 2022 and came into effect from 1 April 2022. The QAHC rules were also introduced in Finance Act 2022 and came into effect from 1 April 2022.

Detailed proposal

Operative date

The measure will have effect on and after the date of Royal Assent to Spring Finance Bill 2023.

Current law

The relevant GDO condition is contained in Regulations 75 and 76 of the Offshore Funds (Tax) Regulations 2009 and is incorporated into:

• the QAHC rules in paragraph 9 of Schedule 2 to the Finance Act 2022;
• the REIT rules in section 528ZB of the Corporation Tax Act 2010; and
• the NRCG rules in paragraphs 7, 13, 46, 46A and 51 of Schedule 5AAA of the Taxation of Chargeable Gains Act 1992.

Proposed revisions

This measure makes amendments to:

• paragraph 9 of Schedule 2 to the Finance Act 2022;
• section 528ZB of the Corporation Tax Act 2010; and
• paragraphs 7, 13, 46, 46A, 47 and 51 of Schedule 5AAA of the Taxation of Chargeable Gains Act 1992

In each case, the amendments provide that where a fund vehicle forms part of a multi-vehicle arrangement, an entity can satisfy the GDO test if it is satisfied in relation to the multi-vehicle arrangements to which the fund vehicle is party.

Summary of impacts

Exchequer impact (£m)

2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028
—	nil	nil	nil	nil	nil

This measure is not expected to have an Exchequer impact.

Economic impact

This measure is not expected to have any significant macroeconomic impact.

Impact on individuals, households and families

There is not expected to be an impact on individuals as this measure only affects businesses.

This measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

It is not expected that there will be adverse effects on any group sharing protected characteristics.

Impact on business including civil society organisations

This measure will have a negligible impact on certain investment entities that may be able to make elections under the QAHC, REIT or NRCG rules as a result of these changes. One-off costs could include familiarisation with the changes. Continuing costs could be incurred by business making such elections relating to the monitoring and provision of more information to HMRC.

Customer experience is expected to remain broadly the same as it does not alter how individuals interact with HMRC.

This measure is not expected to impact civil society organisations.

Operational impact (£m) (HMRC or other)

This change should not result in any operational impacts.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be kept under review through ongoing communication with an industry working group.

Further advice

If you have any questions about this change, please contact the GDO Review Team. Email: GDOReview@hmrc.gov.uk