UK Law and Practice Contributed by: Sam Kay, Philippa List, Mark Stapleton and Nicolas Kokkinos, Dechert LLP
tion taxpayers will treat them as taxable income. Depending on its particular circumstances, a non-resident investor may be able to reclaim under a double tax treaty all or part of any tax withheld from PIDs paid to it. Other distributions of profits by REITs are taxed as dividends in the normal way. Therefore, UK tax resident individuals will be subject to income tax at rates of up to 39.35%, and corporation taxpayers can potentially benefit from the gen - eral UK company exemption from tax on divi - dends. An OEIC can be used for an open-ended retail fund, which is a collective investment scheme structured as a corporate vehicle. Different authorisations apply, depending upon the investments to be made. For example, OEICs that invest in real estate may be structured as PAIFs, provided the relevant conditions are met. For an open-ended structure, an AUT can also be used. This is a type of unit trust authorised by the FCA, which is constituted by a trust deed made between the trustee and the manager of the fund. The property of the AUT is legally held by the trustee but managed by the manager. The investors have beneficial ownership of the property of the fund. Many PAIFs have an AUT as a feeder vehicle to enable corporate investors wishing to hold 10% or more indirectly to invest without infringing regulatory requirements. In 2013, two new types of tax transparent funds (ACSs) were introduced in the UK. These new types of authorised funds can take the form 3. Retail Funds 3.1 Fund Formation 3.1.1 Fund Structures
of a partnership or a co-ownership scheme. In practice, the co-ownership scheme has proved more popular, particularly from a tax perspec - tive. However, ACSs are only suitable for use by institutional investors, with investment restricted either to investments of a minimum of GBP1 mil - lion or to professional institutional investors. 3.1.2 Common Process for Setting Up Investment Funds Retail funds structured as open-ended funds require prior regulatory authorisation. Open- ended funds have their own constitutional docu - mentation, depending on which type of vehicle is being set up, as follows: • a trust deed in the case of an AUT; • an instrument of incorporation in the case of an OEIC; and • a co-ownership or partnership deed in the case of an ACS. In each case, the documents set out the fea - tures, powers and rules governing each author - ised fund. There are very detailed operational requirements for both UCITS and NURS funds, however structured. Day-to-day operations are detailed in the fund’s prospectus. 3.1.3 Limited Liability OEICs in the UK can be structured as a single fund or as an umbrella company with multiple sub-funds, each of which would have its own investment aims and objectives. The legal frame - work in the UK provides for the ring-fencing of the assets and liabilities of each sub-fund. An AUT can have a single fund or an umbrella fund structure. In the latter case, each sub-fund is constituted under a separate trust.
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