CG73998P - UK property rich collective investment vehicles: Exemption election: Exemption election under TCGA92/SCH5AAA/para 12(2)

Only offshore CIVs as defined at TCGA92/SCH5AAA/para 2 are eligible to make an election. Once an election is made, the CIV is referred to in the legislation as a “qualifying fund”. A company that is within the TCGA92/SCH5AAA/para 1 definition of a CIV only by being an alternative investment fund may not make the election unless it would also meet the definition of a collective investment vehicle for another reason. In order to be eligible to make an election a CIV must therefore be –

  • an offshore collective investment scheme as defined at FSMA2000/S235 (this will include transparent for income entities, such as Jersey property unit trusts for example, that have not made an election under paragraph 8 and therefore remain opaque for capital gains purposes) or
  • a non-UK resident company that comes within TCGA92/SCH5AAA/para 1(1)(d), (e) or (f) so that it will be similar to a UK real estate investment trust.

The entities in which the CIV has at least a 40% interest and which also will be exempted because of the election as a result of TCGA92/SCH5AA/para 16 may be UK or non-UK resident, bodies corporate or deemed companies under TCGA92/SCH5AAA/para 4 and may themselves be CIVs. The exemption covers direct or indirect disposals of UK land. See CG73999A for more information.

The CIV must have an investment of at least 40% in an entity for that entity to benefit from exemption. Where the investment is less than 100% the gain or loss is exempted proportionately to the level of investment the electing CIV (referred to as the ‘qualifying fund’ in Schedule 5AAA) has in the entity. The level of investment is established using the tracing rules in TCGA92/SCH1A/para 9 (see CG73938).

The CIV must continue to meet certain qualifying conditions for the election to have effect. If the circumstances of the CIV change so that it does not meet the conditions, this will trigger a deemed disposal and reacquisition by the investors of the interests in the CIV. In some circumstances any gains triggered by the deemed disposal will be brought into charge immediately, and in some the gain will not come into charge until the investors receive funds from the CIV, the CIV winds up, or a period of three years elapses (whichever is earliest) - see CG73999G for further detail.