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Paifs ‘are the future of real estate funds’

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The tax advantages of property authorised investment funds mean that they are likely to become the industry standard for real estate funds in the future, according to a seminar on Paifs hosted by Capita Financial Group this week.

The tax advantages of property authorised investment funds mean that they are likely to become the industry standard for real estate funds in the future, according to a seminar on Paifs hosted by Capita Financial Group this week.

The seminar, which examined the benefits and challenges of Paifs, featured speakers including Andrew Whittaker, managing director of specialist fund services at Capita Financial Group; Cofunds director of institutional services Christopher James; Mark Sherwin, company secretary of the Association of Real Estate Funds; Susan Spiller, head of marketing at Royal London Asset Management; Nick Preston, senior director at CBRE; and Cathryn Vanderspar, partner at legal firm Berwin Leighton Paisner.

Spiller said: “Authorised investment funds investing in real estate suffer a 20 per cent tax charge on their –taxable income that cannot be recovered. However, Paifs can pay gross dividends from property rental income without deduction of tax. This more tax efficient structure was one of the key reasons why we converted our existing property fund to a Paif, enabling us to broaden our client base to include both tax exempt and taxable investors. Paifs appear to be the way forward for the property fund marketplace and I fully expect them to become the industry standard in the future.”

The session also examined the use of feeder funds, regulatory issues, FSA changes to the rules for Paifs, how to develop and launch such a fund and how to convert, and run, a live Paif. Around 100 fund managers, tax directors, lawyers and property investment professionals attended.

Whittaker said: “In spite of Paifs being a relatively new entrant to the funds market its clear that interest in them is considerable. This may be because Paifs have more flexibility then either Reits or indeed many existing property funds concerning the type and proportions of investments that they can hold and distribute. Or it may be, as our seminar suggested today, because a Paif is, for the first time, tax-efficient investment in property for exempt investors. Whatever the rationale, Paifs, unlike Reits, might have entered the market surreptitiously, but interest in them is growing, both from the obvious, institutional investors, like pension funds, and from the retail investment community.”

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