Technical Guidance on Land Transaction Tax Reliefs for Investment Companies

LTT relief for transfers from an authorised unit trust to an open-ended investment company

This Land Transaction Tax relief applies only to certain fund reorganisations where Welsh land is transferred from an authorised unit trust to an open-ended investment company. Relief may be available on a conversion or amalgamation if the legal conditions are met, especially where investors receive shares in the new company instead of cash and the transfer forms part of the wider restructuring.

• The relief is limited to two situations: converting an authorised unit trust into an open-ended investment company, or amalgamating a unit trust with one.
• For relief to apply, the transfer must be part of the restructuring arrangement, all units in the trust must be extinguished, and former unit holders must receive shares in proportion to their previous holdings.
• Extra consideration is generally not allowed, except that the acquiring company can take on or pay the trustees’ liabilities without losing the relief.
• In a conversion, all of the trust’s available property must become the whole property of the acquiring company; in an amalgamation, it must become part of the acquiring company’s property.
• “Available property” means all trust property except assets kept back to meet trustees’ liabilities, and each part of an umbrella scheme is treated separately.
• The rules are technical and fact-sensitive, so relief depends on the actual documents and structure matching the statutory conditions exactly.

Scroll down for the full analysis.

LTT relief for transfers from an authorised unit trust to an open-ended investment company

This page explains a narrow Land Transaction Tax relief in Schedule 19. It applies when land held in an authorised unit trust is transferred to an open-ended investment company as part of a fund conversion or amalgamation. The relief matters because, if the conditions are met, the land transfer can be relieved from LTT even though a land transaction has taken place.

What this rule is about

Normally, transferring Welsh land to another legal person can trigger LTT. Schedule 19 provides relief in certain collective investment fund reorganisations. The policy behind it is that where a fund is being restructured in a prescribed way, and investors are effectively rolling over their interests into the acquiring company rather than cashing out, the land transfer may be relieved.

The guidance deals with two situations only:

• the conversion of an authorised unit trust into an open-ended investment company, and
• the amalgamation of an authorised unit trust with an open-ended investment company.

In both cases, the land must move from the authorised unit trust to the open-ended investment company under an arrangement that satisfies specific conditions.

What the official source says

The Welsh Revenue Authority guidance states that relief may apply where property subject to the trusts of an authorised unit trust is transferred to an open-ended investment company.

For a conversion relief, the conditions include the following:

• the transfer must form part of an arrangement to convert an authorised unit trust into an open-ended investment company;
• under that arrangement, the whole of the available property owned by the target trust must become the whole of the property of the acquiring company;
• all units in the target trust must be extinguished;
• the consideration must consist of, or include, shares in the acquiring company issued to the former unit holders;
• those shares must be issued in proportion to the investors’ former unit holdings; and
• the consideration must not include anything else, except that the acquiring company may assume or discharge liabilities of the trustees of the target trust.

For an amalgamation relief, the structure is similar, but the whole of the available property of the target trust must become part of the property of the acquiring company, not the whole of it. In other words, the acquiring company already has property of its own, and the target trust’s assets are merged into it.

The guidance also explains some key definitions:

• the whole of the available property of the target trust means all property subject to the trusts of the target trust, except property retained to discharge the trustees’ liabilities;
• each part of an umbrella scheme is treated as a separate authorised unit trust for these purposes; and
• an authorised unit trust means a unit trust scheme for which an order under section 243 of the Financial Services and Markets Act 2000 is in force.

What this means in practice

This is not a general relief for transfers between investment vehicles. It is available only for a specific kind of fund reorganisation and only if the statutory conditions are followed closely.

The practical points are:

• the transfer of land must be part of a wider restructuring arrangement, not a standalone property transfer;
• the investors in the unit trust must receive shares in the acquiring company in proportion to what they previously held;
• the arrangement must not include extra consideration, apart from the acquiring company taking on or paying trustees’ liabilities; and
• the distinction between conversion and amalgamation matters, because in a conversion the target trust’s available property becomes the whole property of the acquiring company, whereas in an amalgamation it becomes only part of the acquiring company’s property.

The reference to liabilities is important. The legislation allows the acquiring company to assume or discharge liabilities of the trustees of the target trust without breaking the relief. That means the existence of trustee liabilities does not automatically prevent relief, provided the arrangement otherwise fits the statutory model.

The definition of available property is also important. Property can be left behind if it is retained to discharge trustees’ liabilities. The test is therefore not necessarily whether every asset moves, but whether all available property moves, with only the permitted retention carved out.

How to analyse it

A sensible way to test whether the relief may apply is to work through the transaction in stages.

1. Identify the entities involved.

   Is the transferor an authorised unit trust within the statutory meaning? Is the transferee an open-ended investment company?

2. Decide whether this is a conversion or an amalgamation.

   If the trust’s available property is becoming the whole property of the acquiring company, this points to conversion. If it is becoming part only of the acquiring company’s property, this points to amalgamation.

3. Check that the land transfer is part of the relevant arrangement.

   The relief is aimed at transfers forming part of the conversion or amalgamation arrangement. The transaction should be analysed in the context of the whole restructuring.

4. Check what happens to the units.

   All units in the target trust must be extinguished. If some remain in existence, the condition is not met on the wording provided.

5. Check the consideration carefully.

   The former unit holders must receive shares in the acquiring company, and those shares must be issued in proportion to their previous holdings. The arrangement must not include other consideration, except for the permitted assumption or discharge of trustees’ liabilities.

6. Check whether any property is retained.

   If assets are retained, ask why. Retention to discharge trustees’ liabilities is built into the definition of available property. Retention for other reasons may need closer scrutiny.

7. If an umbrella scheme is involved, identify the relevant part.

   The guidance says each part of an umbrella scheme is treated as an authorised unit trust in its own right for this relief.

Example

A unit trust authorised under section 243 of the Financial Services and Markets Act 2000 holds Welsh property and other assets. A restructuring is carried out so that all investors’ units are extinguished and, in exchange, they receive shares in an open-ended investment company in the same proportions as their former unit holdings. The acquiring company also takes on the trustees’ liabilities. All of the trust’s available property is transferred, except for a small amount retained to meet those liabilities.

On the facts given in the guidance, this is the kind of arrangement that may qualify for relief. If, however, investors also received separate cash consideration not falling within the permitted treatment of liabilities, that would raise a serious question over whether the condition on consideration was still met.

Why this can be difficult in practice

The conditions are technical and narrow. Problems often arise not because the overall transaction looks commercial, but because one part of the legal implementation does not match the statutory pattern.

Points that may be fact-sensitive include:

• whether the arrangement is properly characterised as a conversion or an amalgamation;
• whether all units are truly extinguished under the arrangement;
• whether any element of consideration goes beyond shares plus the permitted assumption or discharge of trustees’ liabilities;
• whether retained assets are genuinely retained to discharge trustees’ liabilities; and
• how to identify the relevant trust where an umbrella scheme is involved.

The guidance says relief may apply if the necessary conditions are met. That wording matters. It means the relief depends on the statutory requirements being satisfied on the actual facts and documents, not simply on the transaction being described commercially as a fund conversion or merger.

Key takeaways

• This relief is aimed at specific fund restructurings involving an authorised unit trust and an open-ended investment company.
• The conditions on extinguishing units, issuing shares proportionately, and limiting other consideration are central.
• In a conversion, the trust’s available property becomes the whole property of the acquiring company; in an amalgamation, it becomes part only of that property.

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Useful article? You may find it helpful to read the original guidance here: Technical Guidance on Land Transaction Tax Reliefs for Investment Companies

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