CG73998S - UK property rich collective investment vehicles: Exemption election: Exemption election by limited partnership collective investment vehicle (CIS), deemed partnerships and authorised contractual schemes (CoACS) under TCGA92/SCH5AAA/para 12(3)

Nothing within Schedule 5AAA treats a limited partnership CIS (LP CIS) or a UK co-ownership authorised contractual scheme (CoACS) as a company for TCGA purposes, and as they are not otherwise legal persons they are not within the charge to tax. LP CISs remain transparent for gains, and so interests in them are not assets for their investors; units in a CoACS are treated as shares in a company for the purposes of considering whether non-UK resident investors hold an interest in a UK property rich asset, and for UK investors the units are a CG asset (TCGA92/s103D).

Investors in LP CISs and CoACS used in property fund structures would however, as a result of the default position for companies in those structures that are wholly or almost wholly and directly owned by LP CIS and CoACS, face the problems described at CG73996A in respect of tax being charged on those companies. TCGA92/SCH5AAA/para 12(3) therefore provides for a manager of such funds to make an election on behalf of companies that are wholly or almost wholly and directly owned by LP CISs and CoACS. Companies invested in by the electing LP CIS or CoACS are referred to in Schedule 5AAA as ‘qualifying companies’.

The company and the collective investment vehicle that holds it must meet the qualifying conditions in paragraphs 12 and 13 (see CG73998V).

The company and the CIV that holds it must continue to meet certain qualifying conditions for the election to have effect. If the circumstances of the company or 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 company. 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 company, the company winds up, or a period of three years elapses (whichever is earliest) - see CG73999G for further detail.

CIVs that have made the transparency election at TCGA92/SCH5AAA/para 8 and that are therefore deemed to be partnerships may also make an election under TCGA92/SCH5AAA/para 12(3) on behalf of one or more companies which they wholly or almost wholly and directly own, where they consider it appropriate to do so.

Exemption election by limited partnership (LP) collective investment scheme (CIS) and deemed partnerships

A LP CIS may make an election in respect of one or more companies that are not CIVs themselves and that it wholly or almost wholly and directly owns, providing the qualifying conditions are met in respect to each company. The election may only be made where a single LP CIS has such an interest. No such election is possible where two or more LP CISs wholly or almost wholly and directly own a company between them. If two or more partnerships wholly or almost wholly and directly own a company through a common LP CIS, that LP CIS may make the election subject to meeting the necessary conditions.

Where a LP CIS has an interest in a company that is a CIV itself then that CIV can make its own election under TCGA92/SCH5AAA/para 12(2), provided the relevant conditions are met.

A LP CIS need not be UK property rich for an election to be made, but the investors’ interests in the company directly underlying the LP CIS must be an interest in a UK property rich asset (so the company must be UK property rich).

For a summary of the necessary conditions see CG73998V.

Exemption election by UK co-ownership authorised contractual schemes (CoACS)

A CoACS may make an election in respect of one or more companies that are not CIVs themselves and that it wholly or almost wholly and directly owns. Such companies are fund property of the CoACS and as set out in TCGA92/s103D, a participant’s interest in the fund property of a CoACS is disregarded for the purposes of TCGA. However, for the purposes of considering whether the fund and underlying companies qualify to make the election TCGA92/SCH5AAA/para 12(7) treats the CoACS as transparent for gains (for example when looking at the non-close condition).

It is the CoACS that must be UK property rich to meet the eligibility requirements for the election as it is the shares in the CoACS that are capital gains assets in the hands of the investors.

For more detail on the necessary conditions see CG73998V