The RIF is a new form of collective investment scheme that is particularly suitable for holding UK commercial property. It has many of the characteristics of the widely used Jersey Property Unit Trust (JPUT), but onshore in the UK. It replicates the existing Authorised Co-ownership Contractual Scheme (CoACS) without the regulatory burden of the fund itself being regulated by the FCA. It is treated as an Alternative Investment Fund (AIF), so the manager will still need to be regulated. It will also need to have a UK depositary.

The tax treatment mirrors that of the CoACS:

• Transparent for the taxation of income;
• Opaque and exempt for the taxation of capital gains. Investors will be taxed on disposal of units in the RIF;
• Treated as a company for the purposes of Stamp Duty Land Tax (SDLT), there is a seeding relief from SDLT for the contribution of £100 million or more of assets in return for the issue of units, subject to some complications outside the scope of this brief article. It is also important to note that there is a clawback of the relief if the unit holder exits their position within three years.

To qualify as a RIF, it has to meet one or more of the following tests:

• where at least 75% of the value of the RIF’s assets is derived from UK property (so that the RIF is ‘UK property rich’ for the purposes of the non-resident capital gains rules); or 
• where all investors in the fund are exempt from tax on gains; or
• where the fund does not directly invest in UK property, or in UK property rich companies.

The first and third are mutually exclusive.

It must also meet a genuine diversity of ownership (GDO) or a non-close test.

The RIF may be marketed to:

• Professional investors;
• Large investors, each investing more than £1 million

As covered in the ICAEW Construction & Real Estate Community webinar, New UK real estate fund vehicles, in April last year, the RIF is an attractive option for closed-ended and evergreen funds in real estate. Its introduction is one of a number of reforms introduced following the government’s Review of the UK funds regime in 2020. Using these in combination provides even more interesting opportunities for the RIF, for example, using a RIF in combination with:

• an unlisted Real Estate Investment Trust (REIT) to invest in UK real estate;
• a Qualifying Asset Holding Company (QAHC) to hold other assets;
• a Long-Term Asset Fund (LTAF) to facilitate investment in illiquid assets by defined contribution (DC) pension schemes. This is a topic that we covered in more detail last October.

The RIF provides a tool to combine these for investments in underlying real estate for different types of investor, for example, overseas investors coming into the RIF via a REIT, DC pension investors via an LTAF and Local Government Pension Scheme pools investing directly in the RIF, or via their own pooled RIF.

Overall, the RIF will add significantly to the options available for investing in UK real estate.