UK Law and Practice Contributed by: Sam Kay, Philippa List, Mark Stapleton and Nicolas Kokkinos, Dechert LLP
the PAIF has a reasonable belief that the person beneficially entitled to the payment is a UK tax resident company). Depending on its particular circumstances, a non-UK resident investor may be able to reclaim under a double tax treaty all or part of any tax withheld from property income distributions paid to it. No withholding tax should apply to payments of interest or dividend distri - butions. Tax position of the investor In relation to PAIFs, broadly, for recipients, prop - erty income distributions are taxed as profits of a UK property business, so UK resident individuals are subject to income tax on them (at rates of up to 45%), and credit should be given for tax with - held on payment of the PID. Corporation taxpay - ers will treat them as taxable income. Interest distributions are, broadly, treated as interest receipts, so UK resident individuals will be subject to income tax (at rates of up to 45%), and corporation taxpayers will treat them as tax - able income under the loan relationship rules. Dividend distributions are taxed as dividends on shares in the normal way. Therefore, UK tax resident individuals will be subject to income tax, at rates of up to 39.35%, and corporation tax - payers can potentially benefit from the general UK company exemption from tax on dividends. ACSs Tax position of the fund ACSs can take the form of either co-ownership schemes (CoACSs) or limited partnerships. However, the tax discussion in this chapter is confined to CoACSs, which is the more common ACS structure. A CoACS is not subject to tax in the UK as it is not a body corporate and has no legal per -
sonality. Distributions to investors from CoACSs should generally not be subject to withholding tax (although withholding may be required if a CoACS has UK property income and non-UK resident investors). Tax position of the investor From the perspective of a UK investor, CoACSs are transparent with respect to income from a tax perspective but are treated as opaque with respect to the taxation of capital gains. For the purposes of tax on income, investors in a CoACS are therefore treated as if they direct - ly received the income arising from its assets. Accordingly, the tax treatment of an investor in relation to such income will depend on the inves - tor’s own tax position. For capital gains purposes, an investor’s interest in the underlying assets of the CoACS is disre - garded and instead its holding of units in the scheme is treated as an asset. This simplifies the computation of the participant’s chargeable gains or losses as they are regarded as having a single asset rather than many separate assets, and they can only incur a chargeable gain or loss on a disposal of their interest in the fund. The rules for computing chargeable gains and losses generally operate in the normal way, as they would for shares and securities. 4. Legal, Regulatory or Tax Changes 4.1 Recent Developments and Proposals for Reform Following the end of the Brexit transition period, the UK government placed considerable empha - sis on the potential opportunities to create what it hoped would be a more competitive financial
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