Following considerable lobbying by international life insurers and their representative bodies, the UK government quietly confirmed on 2 March that they would not be subject to a capital gains charge on the disposal of investments in UK property rich investment funds.
HM Revenue & Customs introduced a CGT charge on non-resident investors in UK property rich collective investment vehicles in April 2019.
But it only really came to widespread attention when three industry chief executives; Peter Kenny (Quilter International), David Kneeshaw (RL360) and Mike Foy (Utmost), discussed it at an International Adviser event in October 2019.
At the time, it was suggested that the move could see as much as £2.3bn ($3.2bn, €2.7bn) pulled from these funds as life offices would struggle to implement the changes needed to administer the charge.
As if it were in the UK
Confirmation of the changes, which was made the day before the UK budget, follow a consultation that was released in November 2020 and will come into force on 24 March 2021.
According to the updated legislation, the charge will not apply “if the person making the disposal is an overseas life insurance company or would be such a company if it were carrying on its life assurance business in the UK through a permanent establishment there”.
Having previously described the CGT charge as “unworkable”; RL360 head of technical services Neil Chadwick told IA: “It’s really good news for advisers and customers who wish to have exposure to this asset class, as well as the sector itself.
“HMRC worked closely with industry representatives to get here and our thanks go out to all those who helped achieve it.”
Work still to do
Quilter International chief executive Kenny told IA: “The confirmation that UK property rich funds held in an offshore bond will not be subject to UK corporation tax, (providing an overseas insurance provider does not hold over certain percentage thresholds) on any gains on disposal will be music to much of the industry’s ears.
“It is testament to the industry’s lobbying efforts and HMRC’s willingness to listen that we have reached a fantastic conclusion and avoided the significant unintended consequences that might have followed had the previous legislation not been changed.”
He continued: “Not long ago, much of the adviser community was resigned to the fact they would have to advise their clients to remove their investments from these types of funds as they simply didn’t make for an attractive proposition.
“The consequences of this could have been drastic as it looked as if there was going to be mass redemptions in property funds from offshore products, which would have piled more liquidity pressure on UK property rich funds. But due to this change in legislation, clients will still be able to access the diversification benefits of UK property funds.
“However, we are still not out the woods yet in respect to property funds as an FCA proposal has been tabled, which would require investors to give notice to receive their cash from property funds.
“Some in the industry see this as a positive step forward and would improve liquidity problems plaguing this sector while others have come out strongly against it citing concerns that it would reduce retail investors choice,” Kenny added.
Eduardo Ingles says:
Much praise should go to the Association of Real Estate Funds (AREF) and their Tax Committee for this result. Bravo! Credit where it’s due.