A new type of investment fund is on course to become available later this year, tipped to unlock billions of pounds in new capital for UK property.
The Reserved Investor Fund, or RIF for short, is expected to be available to investors following Royal Assent to the forthcoming Finance Bill 2024.
In a statement the British Property Federation said the RIF legislation is moving quickly through the latter stages of the Finance Bill and Government consultation on draft tax regulations, which ended this week. It said it has received widespread support from industry and constructive engagement with officials.
Backing the fund, the BPF explained: "The RIF is based onshore in the UK – unlike offshore property funds – and it has an effective transparent tax status. This means investors are liable for tax on the income of the fund on an arising basis in accordance with their own circumstances.
"It is also quick to create and launch and straightforward to operate. It is hoped that such simplicity and flexibility will encourage a larger number of smaller asset managers to launch strategies using the fund structure."
Melville Rodrigues, head of real assets advisory at Apex Group and a member of the Association of Real Estate Funds Public Policy Committee, is a key architect of the fund who engaged with HM Treasury, HMRC and the Financial Conduct Authority officials on its creation.
He said in a statement: “It has been wonderful for me to lead the industry initiative, working over several years with Government and regulatory officials and the real estate industry. The draft RIF tax regulations reflect a pragmatic and robust way forward for Government, the regulator and industry.
“With the RIF legislation being implemented, my passion is for the RIF to attract UK and international institutional capital – and in the process ease the burden on government finances – for regeneration of our town centres, more social and affordable housing and accelerating net zero goals. I’m looking forward to UK fund managers later this year launching RIFs.”
Paul Richards, CEO at the Association of Real Estate Funds, added: “We represent funds with £50 billion in UK property investments alone. We expect the RIF to give our members and their investors, UK and overseas, quick and simple access to projects that can help the UK economy grow, house its people more effectively and make for a more sustainable way of living and working.”
Rachel Kelly, assistant director at the British Property Federation, says removing barriers to real estate investment and ensuring that the UK has appropriate fund offerings for investors’ needs will be helpful in bolstering the UK's funds industry and important in addressing some of the "biggest challenges of our time".
She says these include meeting net zero carbon targets, the regeneration of high streets and the development of more high quality homes.
"In order for the new Reserved Investor Fund to be attractive to the widest pool of investors, the Government should ensure that the RIF is competitive with overseas equivalent fund vehicles. The UK must offer a truly competitive and viable onshore option.”
Government confirmation that there will be legislation in the Finance Bill to create the proposed Reserved Investor Fund, a move the UK real estate funds industry has been been vigorously backing as a means of making the country more attractive for property investors, was published alongside the Budget earlier this year.
On 27 April 2023, the government published a consultation on the introduction of a new fund structure, or a co-ownership contractual scheme, not authorised by the Financial Conduct Authority, which it suggested should be called the Reserved Investor Fund, or RIF. It had been termed the Professional Investor Fund, or PIF.
The Treasury launched a review of the UK funds regime in January 2021 with a response paper published in January 2022. The RIF was included as a draft amendment to the Financial Services and Markets Bill in December 2022, allowing them to be created.
The Association of Real Estate Funds has welcomed the proposals from the start saying they will plug a vital gap in the UK fund offering, particularly for real estate investors. The legislation will enable managers focused on real estate and other sectors to progress with new fund launches onshore and avoid having to go offshore and experience the challenges of and costs associated with multiple legal, tax and regulatory regimes.
AREF says the proposals would make the UK significantly more competitive for funds because investors would prefer an onshore structure that is not itself Financial Conduct Authority-authorised but is operated by an UK alternative investment fund manager and UK depositary, both of which are FCA authorised and regulated.
The RIF will also lower the barriers for small and medium enterprises asset managers to launch new products, it says.
In terms of real estate it will unlock investment in longer-term productive capital and less-liquid real estate and real assets. AREF estimates that there is over £3 trillion in UK institutional funds alone and says "allocating even a small proportion of those funds to essential investments should have a materially positive effect".
John Forbes, a leading tax expert at John Forbes Consulting, says that although some of the situations envisaged for its use at the time of the original proposals have another solution in the form of the unlisted real estate investment trust rules that came into effect on 1 April 2022, it will be the preferred vehicle in many situations.
"The introduction of the RIF also complements other changes in the UK funds universe since 2020. In particular we see an opportunity to use RIFs in conjunction with Long Term Asset Funds, which have been introduced to facilitate investment in illiquid assets by defined contribution pension schemes. We see an opportunity to set up LTAFs as fund-of-funds, with the RIF as a very suitable vehicle for the underlying funds."