Property Authorized Investment Funds (PAIF)

Question 1

What is a Property Authorized Investment Fund?

Answer 1

It is a property fund that invests in shares of a property company

Question 2

Tax Status of Fund and Underlying Structure

Answer 2

Tax exempt fund and the fund is set up as an Open Ended Investment Company (OEIC). FCA Recognized.

Question 3

Main Feature of PAIF

Answer 3

Rental profits are exempt from Corporation Tax.

Without the PAIF structure, 20% Corporation Tax would apply.

This is not an issue for individuals who pay tax and as they can offset with tax credit, but tax exempt investors who cannot reclaim the tax credit.

This makes PAIFs attractive for investors who are tax exempt, such as pension funds and SIPP investors

Question 4

What about all other Income produced within the fund?

Answer 4

Corporation Tax at 20%

Question 5

What are the three types of distributions paid to investors within a PAIF

Answer 5

1) Property Income - Paid gross if held in a pension or ISA. If paid net, this can be reclaimed
2) Interest Income - Paid Gross
3) Dividends - Paid Gross

Question 6

Conditions of a PAIF

Answer 6

1) At least 60% of PAIFs net income in an accounting period must be from the exempt property business
2) At the end of each accountancy period, the value of the assets involved in the property investment business must be at least 60% of the total assets held by the PAIF
3) It’s shares must be widely held with no more than 10% of the funds NAV held by a corporate investor