RIF: Unlocking growth and investment opportunities in the UK

It is welcome news that the government has laid its reserved investor fund (RIF) secondary legislation before Parliament.  From 19 March 2025, UK fund managers will be entitled to launch – or convert current investment structures into – RIFs.

The RIF plugs an important gap in the UK’s investment fund offering. Asset managers, from small to medium-sized enterprises (SMEs) to larger firms, will no longer be forced offshore with all of the associated challenges and costs of dealing with multiple legal, tax and regulatory regimes.

Innovative opportunities

As the key architect and lead campaign advocate of the RIF2, I hope the RIF will be a conduit for capital and will facilitate growth – “the number one mission” of government given its aims of “restoring economic stability, increasing investment and reforming the economy”.

The onshore RIF can act as a valuable new economic catalyst by creating jobs, accelerating the development of our nation’s infrastructure, facilitating the regeneration of our town centres and furthering sustainability strategies.

Thanks are due to the government and regulatory officials as well as to industry stakeholders for constructively engaging with the RIF campaign.

How is the RIF structured?

The RIF is modelled on a co-ownership authorised contractual scheme (CoACS). For regulatory purposes, it must be classified as a UK alternative investment fund (AIF). It will therefore have a UK alternative investment fund manager (AIFM), with small authorised or registered AIFMs being permitted.

Eligible investors will include:

• Professional investors: under the marketing rules of the Financial Conduct Authority (FCA) for non-mass market investments, the RIF could also be promoted to other investor categories like high-net-worth individuals and certified and self-certified sophisticated investors; and
• Large investors: defined as investors committing at least £1m (€1.2m).

Given its co-ownership structure, a RIF will need at least two investors. The AIFM will make decisions on behalf of the RIF (and, effectively, its investors) about the acquisition, management and disposal of assets. The AIFM will also make decisions regarding risk management. Each RIF also must have a depositary.

The RIF is a UK fund structure that offers fund managers, and their investors, a variety of options.

In terms of investor exits, a RIF could be closed-ended or hybrid with flexibility on redemptions, including on a quarterly basis.

A RIF’s redemption windows can be tailored to liquidity matching. Another key advantage is that the RIF, as an unregulated collective investment scheme, will be subject to a light-touch regulatory regime. This in turn will reduce launch and operational costs.

It is likely that the RIF’s principal constitutional documents will be:

• a deed, signed by the AIFM and the initial investors (RIF deed); and
• suitable admittance documentation to allow additional investors to acquire interests in the RIF.

The AIFM will need to act in accordance with the provisions of the RIF deed and the terms of the AIFM’s engagement as manager, but will not be subject to many of the FCA rules that would apply in the context of launching and managing an FCA authorised fund.

With no need for prior registration with Companies House, the RIF will be an attractive solution for those seeking an accelerated speed-to-market launch.

Tax

The tax treatment of the RIF is loosely based on the CoACS legislation. As such, the RIF is transparent for income tax purposes, should not be subject to tax on gains made on disposals of assets and there will be no stamp taxes on purchases of units in a scheme that meets the conditions to be a RIF.

A number of conditions must be met in order for a co-ownership scheme to become a RIF and take the benefit of the associated tax regime.

A RIF must meet one or more of three “restriction conditions” which broadly are:

• UK property-rich RIF, at least 75% of the value of the RIF’s assets derives from UK property – based on the UK’s non-resident capital gains tax rules;
• RIF whose investors are all UK tax-exempt, ie, the underlying assets are unconstrained; and/or
• RIF whose asset base does not include UK property or interests in UK property-rich companies [although an exclusion for sub-10% investments in certain UK property-rich collective investment vehicles is available]: any other underlying assets are permissible.

The RIF must also meet a number of general conditions. These include an ownership condition based on genuine diversity of ownership or on a non-close test.

There are a number of tax benefits to being within the RIF regime. The regime replicates the CoACS treatment for the taxation of capital gains, ie, opaque for UK chargeable gains purposes, such that investors in the RIF are not taxed on gains as a result of disposals by the RIF of underlying assets but investors are subject to tax on the realisation of their RIF units.

From a stamp duty land tax (SDLT) perspective, a RIF is treated as a company such that the acquisition of units in the RIF is not subject to SDLT and the RIF will also benefit from a seeding relief from SDLT – modelled on the existing CoACS seeding relief.

The RIF secondary legislation also sets out what happens if the RIF conditions are breached and how certain breaches may be rectified: for instance, a RIF will have nine months to rectify a breach of the UK property-rich RIF restriction condition.

The RIF restriction condition framework is a pragmatic way forward for the RIF legislation, particularly as regards the UK property-rich category which should be utilised by UK real estate fund managers.

From an operational perspective, RIF restriction condition compliance will have to be monitored on a regular basis, but that is no different to the monitoring required to ensure compliance with the conditions for other tax-advantaged regimes like the real estate investment trust regime.

TER competitive

I am delighted that several fund managers have already decided to progress with RIF launches. To other managers, I urge them to explore the RIF option.

Investors – including UK local authority and other pension schemes – have understandable fiduciary concerns to commit via investment structures which are competitive including in respect of the structures’ total expense ratios (TERs) and other strategic goals.

The RIF is designed to be TER competitive. Fund managers: reassess and future-proof your investment structure universe, given that the RIF is now available.

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