AS 2014: Stamp duty ‘double taxation’ to be removed for Paifs

An aberration in the tax code that means some property funds are stung with a stamp duty charge when converting to Paifs is being cleaned up, Chancellor George Osborne has announced.

However, the Association of Real Estate Funds says the slow move to implement the change will mean fewer conversions in the next couple of years.

Under current stamp duty rules, property funds changing to a tax-efficient Property Authorised Investment Fund structure by transferring existing portfolios into the new vehicle have to pay a 4 per cent tax.

The Government has announced in the Autumn Statement that it will create a tax relief for “seeding” funds with assets that will prevent the stamp duty being levied in that situation. However, it will not be enacted till 2016.

AREF chief executive John Cartwright says the group applauds the move, but laments the delay in implementation.

“We welcome the government’s intention to introduce a stamp duty land tax relief for seeding investment – a much needed removal of double taxation that can help retail investors diversify their portfolio over the long term, particularly as we move further into a defined contribution world in which individuals will need to take responsibility for their retirement savings,” he explains. 

“However the deferral of the measure until 2016 will prevent a number of funds being launched in the UK in the meantime and could represent a lost opportunity for the industry and the Government.”

Cartwright urges the Government to bring forward the changes to be heard in the Finance Bill 2015 instead.”

Distributions from Paifs are tax exempt for eligible investors, usually Isa or pension holders.