RIF – a strategic move to enhance the UK as a global investment destination

In our latest thought leadership Simon Drewett, Altum Group’s Managing Director, highlights the benefits of the Reserved Investor Fund (RIF) and how it has been designed to meet the changing needs of exempt professional and institutional investors, with the aim of boosting the UK’s appeal as a global investment hub.

UK Government legislates for the RIF

Following a review of the UK funds regime announced in its 2020 budget, the UK Government has introduced a growing arsenal of new fund alternatives, including private REITs, long- term asset funds (LTAFs) and QAHCs. Each has been designed to bolster the UK financial services sector, making it more attractive as a global investment destination for international investors and fund managers in the post-Brexit era.

Responding in its Spring Budget to the fund management industry’s continued calls for a UK-domiciled unauthorised contractual scheme for professional and institutional investors, the Government also announced the introduction of the RIF. Intended to address a key gap in the range of structures available to fund managers in the UK, the RIF offers competition against certain offshore fund options through tax transparency and tax exemption on unit transfers.

The Government legislated for the RIF in the Finance Act (No.2) 2024 and, whilst the prospect of a new government in July may delay matters, the Opposition parties are also considered to be supportive and it is widely expected detailed tax rules will be set out in a statutory instrument, possibly before the end of the year.

Relative to existing onshore authorised (open-ended) structures, the RIF’s likely advantages include: 

• Greater flexibility, including redemption windows tailored to liquidity matching;
• Capability of being structured as either a closed-ended or hybrid fund vehicle;
• Lighter touch regulation, reducing launch, administration and operational costs, and
• Higher speed-to-market, with no FCA approval process or Companies House registration.

It is also expected to compare favourably to hitherto popular offshore alternatives such as Jersey property unit trusts, meaning managers will no longer be forced to bear the additional cost of dealing with multiple legal, tax and regulatory regimes, whilst at the same time boosting their ESG credentials through a reduced need to travel.

Advantageous tax treatment 

Tax rules are expected to broadly replicate existing tax neutral co-ownership authorised contractual schemes (CoACS), such that a RIF is transparent for income and transfers of RIF units are exempt from stamp taxes, including SDLT.

RIFs will also be opaque for UK chargeable gains purposes, meaning that RIF investors will not be subject to tax on chargeable gains in respect of disposals of the RIF’s underlying assets, but will instead be subject to tax on realisation of their units.

This beneficial treatment will apply only in respect of certain restricted scenarios, being where: 

• At least 75% of the value of the RIF’s assets is derived from UK property; or
• All investors in the RIF are exempt from tax on gains; or
• The RIF does not directly invest in UK property, or in property-rich companies.

In common with unlisted/ private REITs and QAHCs, RIFs will also need to meet a number of general conditions such as genuine diversity of ownership or a non-close test.

Lighter touch regulatory dynamics

From a regulatory perspective the RIF will look very similar to Luxembourg’s popular Reserved Alternative Investment Fund (RAIF) structure. Unlike a CoACS it will not require authorisation by the FCA and, as such, will be an unregulated collective investment scheme and an alternative investment fund (AIF). Only the RIF manager will therefore need to be authorised by the FCA, either as a full-scope UK AIF manager or a small authorised UK AIF manager. Where the UK AIF manager is full-scope a depositary will also need to be appointed.

Eligible investors will include professional investors and large investors committing more than £1m. Certain retail investor types, such as certified high-net worth, sophisticated investors and self-certified sophisticated investors, may also be capable of categorisation as large investors.

Let’s talk

At Altum we believe the RIF will be a valuable addition to UK fund managers’ toolkit, particularly amongst small to mid-sized real estate managers for whom establishment and ongoing administration costs are a greater consideration. We expect a quick take-up, particularly as the real estate market stabilises and picks up through 2024-25.

Leveraging cutting-edge technology, we streamline the onboarding process for intricate fund structures and are also able to provide all essential services such as incorporation, domiciliation, directorship and company secretarial services relevant to RIFs and their substructures. Once established, our team of experienced asset class specialists will expertly perform all of the RIF’s ongoing functional requirements, including governance, administration, accounting and reporting, as well as UK AIF manager and depositary.

For more information on how we can help you, please contact Simon or James directly.