IFM08540 - Taxation of UK investors in Authorised Contractual Schemes (ACS): property income
UK investors within the charge to UK tax
Investors within the charge to UK tax in both co-ownership and limited partnership ACS are taxable on their share of property income arising in the scheme. This applies to both corporate and individual investors. For individual investors, this means any income received will be subject to income tax at their marginal rate.
Investors not resident in the UK
Normally the income or gains of non-resident investors in an ACS will not be subject to UK tax. However, income that arises from UK land and buildings is subject to UK income tax for non-resident investors whether corporate or individual.
Where investors whose usual place of abode is outside the UK receive income from UK property through an ACS, tax on income from rental property will be deducted at source through a special scheme for non-resident landlords. That scheme also allows rent to be paid gross at source if the non-resident wishes and if HMRC agree. The non-resident will then pay the tax due through self-assessment.
Role of the operator of an ACS
For the purposes of the non-resident landlord scheme, the ACS operator will need to consider whether or not they must deduct UK income tax at source from the rental income received – see the International Manual. Operators will need to consider whether they should register as a Letting Agent for the purposes of the scheme.
Property Income Distributions (PIDs) from UK Real Estate Investment Trusts (REITs) and Property Authorised Investment Funds (PAIFs)
PIDs are taxed as UK property income and will often be paid net of basic rate income tax by the REIT or the PAIF. Non-UK residents may be entitled to reclaim part of the UK tax withheld by the REIT or PAIF under the double tax convention in place between their own jurisdiction and the United Kingdom. The operator of an ACS may administer treaty claims for investors – if so, investors would need to provide relevant information to the operator.
Where all the investors in a particular share class of an ACS would be (on directly held shares) entitled to gross payment of a PID then the operator of the ACS or its depositary (as nominee for the investors) may be able to certify this to the payer and obtain gross payment. See GREIT08125 for REITS and IFM04430 for PAIFs. It has been reported to HMRC that gross payment may not be made if evidence of entitlement is provided too close to the payment date. At present there is no mechanism to recover withheld tax, but HMRC will keep this under review in consultation with stakeholders.
There are rules in place to prevent any corporate investor from holding a 10 per cent or greater share in a REIT (GREIT02100 and following pages) or a PAIF (IFM04170). As an ACS is transparent for tax purposes, an investor in an ACS which has itself invested in a REIT or a PAIF should include an appropriate proportion of the ACS’s REIT & PAIF holdings alongside any direct holdings when applying the 10 per cent test.