HM Treasury introduced a capital gains tax (CGT) charge on non-resident investors in UK property rich funds in April 2019.
The change only really came to widespread attention when three industry chief executives; Peter Kenny (Quilter International), David Kneeshaw (RL360) and Mike Foy (Utmost), discussed it at an International Adviser event in October 2019.
In an interview with IA in January 2020, RL360 head of technical services Neil Chadwick described it as “unworkable”.
Industry was heavily involved in discussions with Treasury, in a bid to help it understand the serious implications the charge would have on industry.
Not least the possibility that as much as £2.3bn ($3bn, €2.5bn) could be withdrawn from UK property rich investment funds if it was not amended or repealed.
Those talks appear to have, finally, borne some fruit; as Treasury released a consultation last week that paves the way for an exemption for offshore life companies.
Bright ray of sunshine
Rachael Griffin, head of trust and technical solutions at Quilter, said the consultation “not only offers a glimmer of hope to offshore life companies, but a bright ray of sunshine”.
“A tax change in 2019 meant that an offshore insurance company holding a UK property rich fund, would potentially have to pay UK corporation tax on any gains on disposal,” she explained.
“After significant lobbying from a variety of industry bodies, many advisers had resigned themselves to the fact that they would need to advise their clients to remove their investments in these funds, as they no longer represented an attractive proposition.”
Griffin continued: “The result was that it looked as if there was going to be mass redemptions in property funds from offshore products, which in turn would put further liquidity pressure on UK property rich funds.
“The consultation proposes an exemption, which means offshore insurers who offer offshore bonds holding these funds will no longer be subject to corporation tax on any gain on disposal provided the offshore life company holds less than 10% of the market value of the fund.
“While this is still in the consultation phase, there is draft regulation which indicates HMRC’s intent is to provide a last-minute reprieve. This is a positive development for offshore life sector clients who should be able to continue to access the diversification benefits of UK property funds.”
Change of heart
Commenting on the development; Simon Barwell, director of marketing at RL360, told IA: “It looks like HMRC have listened to the significant amount of feedback from the market and we are hopeful that the released draft amendments will move to legislation in good order.”
Bob Pain, chief executive of the Association of International Life Offices (Ailo), added: “I am delighted we may see a change of heart from HMRC and Treasury in this matter and would like to thank the work of Ailo and [Manx Insurance Authority] tax committees who have helped this happen.”
The consultation is open until 16 December, full details can be found here.
