Clause 20 - Collective investment schemes: co-ownership schemes

Part of Finance (No. 2) Bill – in a Public Bill Committee am 10:00 am ar 21 Mai 2024.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Tulip Siddiq Tulip Siddiq Shadow Minister (Treasury) 10:00, 21 Mai 2024

It is a pleasure to serve on this Committee under your chairmanship, Mrs Latham. I am pleased to respond to clauses 20 to 24 on behalf of the Opposition. Clause 20, as the Minister set out, introduces the necessary powers to set the scope and design of the tax regime and rules for the RIF. Labour welcomes the introduction of the RIF, as it will add to the investment products available here in the UK, particularly for the UK commercial real estate sector. However, the trade bodies representing investment managers and real estate fund managers, the Investment Association and the Association of Real Estate Funds, have raised some concerns that I would like to put to the Minister.

There was a widely held expectation across the sector that RIF would broadly mirror the conditions of the existing authorised contractual schemes, or ACSs, but offer less regulatory supervision, freeing the RIF to become a more flexible investment vehicle for a range of more experienced investors. Due, however, to the Government’s decision to categorise the RIF as an alternative investment fund instead of a special investment fund, the RIF and the ACS will now differ in two key aspects. First, the supply of fund management services will be standard-rated at 20% as opposed to being VAT-exempt, and secondly, an alternative investment fund comes with a requirement to raise capital from a number of investors with a view to investing it in accordance with the defined investment policy for the benefit of those investors. That makes sense for large-scale, open-ended funds with an ongoing investment strategy, but it clearly is not designed for funds that do not have a specified investment objective, such as funds of one, joint ventures, co-investment vehicles and acquisition vehicles, which instead were created for a particular purpose such as repackaging and selling existing assets to new markets. Since they do not exist to raise additional capital, the requirements associated with alternative investment funds risk being an unnecessary burden and disproportionate when applied to the RIF.

The Investment Association and the Association of Real Estate Funds have warned that the restrictions on the RIF will damage the competitiveness of the UK as a location to domicile funds. In Ireland and Luxembourg, for example, which are leading jurisdictions for these types of products, funds are VAT zero-rated. Although the UK will not easily be able to offer RIFs without capital-raising investment, the Irish qualifying investor alternative investment fund and Luxembourg’s reserved alternative investment fund have, in contrast, proven to be highly competitive products for these types of vehicles because of their cost efficiency and the market’s familiarity with those models. Will the Minister set out why the Government decided to classify the RIF as an alternative investment fund as opposed to a special investment fund? Will he state whether he expects the alternative investment fund requirement to be amended further down the line?