AREF is delighted that the November Budget confirmed that the UK funds industry will soon have access to a new fund structure – the Reserved Investor Fund (RIF). The RIF is an unauthorised UK fund vehicle that takes the form of an unregulated collective investment scheme.
Anne Copeland, an AREF Corporate Governance Committee member, has been actively setting up real estate funds for many years and has closely monitored the progress on the RIF consultation. She shares AREF’s enthusiasm for the new structure. Rachel Portlock, Head of Research, caught up with Anne to hear her thoughts and insights on the RIF, a valuable read for any fund manager looking to launch a new fund or debating the conversion of a current fund structure to a RIF.
RP: Why is the RIF important?
AC: The RIF is an exciting development in the UK real estate funds industry because it facilitates secondary trading, which is the exchange of units between investors, without the buyer incurring stamp taxes including stamp duty land tax (SDLT).
Older readers will recall in 2004 the levying of SDLT on secondary trading in limited partnerships (that hold UK real estate) which effectively turbocharged the offshore funds industry with investors routing their fund structures outside the UK. Buyers of units in an offshore fund are not liable to stamp taxes including SDLT. The RIF creates a level-playing field with offshore funds, stemming the need for extensive offshore travel and reducing the carbon footprint of the UK funds industry, an additional sustainability benefit of the new structure!
RP: Are there other key benefits of utilising the RIF structure?
AC: Yes, not only will the RIF be tax efficient, but it will also typically be simpler (and therefore cheaper) to create and operate than many existing fund vehicles. Being able to purchase RIF units in the secondary market without stamp taxes facilitates liquidity in RIF units. It is expected to be of interest to many institutional investors such as the Local Government Pension Schemes (LGPSs) for whom value for money is a key consideration.
RP: Can managers set up a RIF today?
AC: No. Legislation to enable the establishment of the RIF will be introduced before the end of the current tax year (5 April 2025). This was confirmed in the Autumn Budget statement on 30 October 2024. The expectation is that fund managers will be entitled to set up UK real estate funds or convert existing funds to RIFs from that date.
RP: What parties/entities will be required for a RIF?
AC: There will need to be an alternative investment fund manager (AIFM) and the RIF will be the alternative investment fund (AIF). A third-party depositary is also a prerequisite. As the RIF is a co-ownership scheme, there will need to be at least two investors from the outset.
RP: What documentation is required when setting up a RIF?
AC: A RIF deed and a RIF subscription agreement.
RP: What are the formalities once a RIF has been set up?
AC: The AIFM will have 30 days to notify HMRC although we await HMRC indicating the notification details.
RP: What role does the depositary have?
AC: The usual depositary services: cash management, verification of title and general oversight. This is standard, and there will be a service-level agreement with the depositary.
RP: What are the eligibility requirements for investors?
AC: Eligible investors will include professional and large investors; ‘large investors’ are defined as those committing at least £1 million. Certain types of retail investor may fall within the large investor category, such as certified high net worth, sophisticated and self-certified sophisticated investors.
For further information on the RIF, please get in touch with AREF via [email protected].
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