Non-resident capital gains tax (“NRCGT”) – elections for collective investment vehicles (“CIVs”)

A qualifying fund and a company can enter into a transparency or an exemption election subject to meeting certain qualifying conditions. A transparency election avoids multiple tax charges arising for investors on a disposal of real estate held by the CIV or upon a sale of the CIV units. A tax exemption election also avoids multiple tax charges arising for investors by ensuring that no tax charge arises on a capital gain realised by a CIV on a disposal of directly held real estate or upon sale of shares/units deriving 75 per cent or more their value from UK real estate. The investors are only taxable in the event of a disposal of the CIV units or receipt of distributions comprising capital gains realised by the CIV. In addition, both elections also ensure that qualifying institutional investors (for example, domestic and foreign pension schemes) remain exempt from tax on capital gains arising from disposal of UK real estate and/or gains derived from a sale of shares/units of a company/CIV deriving 75 per cent or more of its value from UK real estate. 

A fund may find itself having the option to either elect for the transparency or the exemption election as it qualifies for both elections. The fund’s manager will need to carefully consider the benefits and drawbacks of each election for the investors before deciding on the election to be filed.

Transparency election

Depending on the type of the investors in a fund, and subject to meeting the conditions as set out below, the manager of the fund could elect for the fund to be treated as transparent for UK capital gains tax purposes such that investors are treated as directly holding UK property interests.

The effect of the election is to ensure that investors should only suffer capital gains tax once, whether selling their interest in the fund, or on a disposal made by the fund. The election deems investors to have directly sold the underlying property assets (subject to the 5 April 2019 rebasing provisions). Prospective purchasers will be acquiring property interests without latent gains irrespective of whether they buy units or the underlying property assets of the fund.

Conditions to be met 

  • the fund is an offshore CIV;
  • the fund is UK property rich (i.e. 75 per cent or more of its gross value is attributable to UK land); and
  • the fund is considered transparent for income tax purposes (e.g. Baker type Jersey/Guernsey property unit trusts, contractual type arrangements e.g. Luxembourg Commun du Placement (FCPs) and Irish common contractual funds (CCFs) etc) otherwise than as a result of being constituted by two or more persons carrying on a trade or business in partnership. Funds where the trustees are beneficially entitled to income (e.g. Garland type trusts) but obliged to distribute that income would not qualify.

Practical consideration


  • Attractive to tax exempt purchasers (e.g. pension fund investors) as this would allow them to invest with no tax layer for capital gains tax.
  • No impact on the status of the fund (e.g. Jersey/Guernsey property unit trusts) for SDLT purposes so there should be no SDLT on the acquisition of the interest in the fund.
  • No commercial discussion on discount for latent gains on exit.


  • Election is irrevocable even when the fund is no longer UK property rich.
  • Not suitable for open ended funds as this could lead to dry tax charge for investors (i.e. deemed disposal triggered whenever there is a change of investors’ individual holding percentage in the fund).
  • Additional admin:
    • Consent required from all investors before making the election.
    • Investors will need to file their own tax returns to report any capital gains arising a disposal. This should not be an issue if the investor is already filing a UK corporation tax return to report income arising from UK property rental business.
    • The fund manager will be required to prepare and file an annual partnership tax return with HMRC regardless whether any UK property interest has been disposed of by the fund in the period. The return will not include the details of the income arising to the fund as this would have to be reported directly by the investors.

Due date for filing the transparency election

   Due date
CIVs with existing UK land interest as at 6 April 2019
Before 1 October 2020 
New CIVs set up on or after 6 April 2019 
The later of:
  • 12 months after acquiring the first UK land interest; or
  • by 1 October 2020. 

Exemption election

CIVs and qualifying joint ventures can make an election to be exempt from NRCGT. The election would have the effect of exempting the CIV on gains arising on disposals of UK property (and full/partial exemption for entities in which the CIV has at least a 40 per cent interest). 

Investors are then taxable upon a disposal/redemption of their interest in a UK property rich CIV (including on any capital distribution made by the CIV to the investors).

Conditions to be met  

  • CIV is an offshore company (or a deemed company) and is UK property rich.
  • If the CIV is a collective investment scheme, it meets the genuine diversity of ownership test; or is non-close and has fewer than 25 per cent investors benefitting from double tax treaty relief on such gains.
  • If the CIV is a company, it is non-close and listed on a recognised stock exchange; or is non-close and has fewer than 25 per cent investors benefitting from double tax treaty relief on such gains.

Practical consideration 


  • Rebasing to market value at the time of the disposal (thereby preserving the exemption at the fund or entity level) where the exemption election has been in place or effective for at least 12 months prior to a disposal and the assets have been held for at least a year. Therefore, there should be no commercial discussion on discount for latent gains on exit or indirect disposal. 
  • No investors consent required (subject to fund’s documentation).


  • Distribution of the disposal proceeds to investors has to be in the form of a capital distribution to avoid triggering a deemed disposal by the investors of their interest in the fund which could lead to a dry tax charge for the investors.
  • Deemed disposals on the investors can arise, for example upon revocation of the election; or if the conditions for the election are no longer met. Rebasing to market value should be available if the election has been effective for at least 5 years.
  • Funds will be committing to complying with the reporting obligations for each period of accounts and there could also be filing obligations for investors too. 
  • Investors will need to file their own tax returns to report any capital gains arising on a disposal.

Due date for filing the exemption election

  • No time limit. An exemption election may be made by the CIV’s manager with a retrospective effect of up to 12 months before the date of the election (or such longer period as HMRC may agree).

How we can help

  • Evaluation of the options available to the CIV and investors to manage the non-resident capital gains tax arising on a disposal of the asset owned by the CIV or exit by the investors by way of a sale of the CIV units.
  • Preparation and submission of the transparency/exemption election to HMRC.
  • Preparation and submission of information required by HMRC to comply with the reporting obligations.
  • Preparation and submission of partnership tax returns.
  • Assistance in the preparation of tax information to investors by funds subject to exemption election and advising on streamlining of distribution policies and practices.
For more information please contact Adrian Benosiglio or Irfan Butt