Non-Paif portfolios ‘disadvantaged’
Share
New property funds launched without a Property Authorised Investment Fund (Paif) structure will be at a disadvantage, according to John Cartwright, the chief executive of the Association of Real Estate Funds.
John Cartwright
A Paif structure allows funds to pay gross dividends from property rental income without the deduction of corporation tax. Those that have no such structure suffer a 20% corporation tax charge on their taxable income that cannot be recovered.
Cartwright says at least one other property manager is planning to launch a Paif and several aim to convert their funds.
Last week, Clavis Walden, an independent asset manager specialising in commercial real estate, launched Britain’s first Paif. The Piccadilly UK Commercial Property Income fund invests in direct commercial properties and property-related assets.
Iain Keys, the managing director, says the new fund will be suitable for those investors looking for income in a tax efficient manner. “Other investor benefits of a regulated vehicle are transparency, strong corporate governance and modest running costs,” he says.
Chris Morrogh and Don Jordison plan to convert their Threadneedle UK Property fund into a Paif.
Gerry Ferguson, the head of property fund management at Scottish Widows Investment Partnership (Swip), says he remains “extremely keen” to convert Swip’s property fund. (article continues below)
“Another issue is that most of the property funds are distributed through platforms”
John Cartwright
“[However,] there are still some technical issues within the industry as a whole that need to be resolved,” Ferguson says.
Cartwright says asset managers that plan to convert a property fund need to change their authorised open-ended unit trust into an Oeic to comply with Paif.
“Another issue is that most of the property funds are distributed through platforms, but platforms are set up to only deal with one income stream,” Cartwright says.
“Within the Paif regime, there are three different income streams and this means that platforms have to make changes to their structure too,” he adds.
Philip Nell, the manager of the Aviva Investors Property Trust, says he does not have any immediate plans to convert but is “monitoring the situation closely”.
“Should we feel that the benefits of conversion would outweigh the costs we would review our position,” Nell says.
