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What we do

Property investment LLPs

Anomalous government rules make it tax inefficient for pension funds to invest in property investment limited liability partnerships, with the result that the use of LLPs by the industry remains limited, even though they are easier and cheaper to use than English limited partnerships.

What's the issue

The rules mean that pension funds cannot invest in real estate through limited liability partnerships (LLPs) without losing the benefit of their tax exemption. LLPs would otherwise often be the preferred vehicle for such investment.

It also means that property companies setting up joint venture (JV) structures cannot generally use an LLP, because doing so would effectively stop the jv from attracting investment from pension funds, either at the outset or at a later stage.

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Why is it important

Because of the rules, most property jvs are currently structured as limited partnerships (LPs), and these are cumbersome, adminstratively costly structures compared to LLPs. There is no clear reason why the rules should have been drawn up as they have been.

Investments in LPs are generally taxed in the same way as those in LLPs, but the tax exemption pension funds enjoy when investing in LPs is lost when they invest in LLPs. The key disadvantages of LPs are higher set-up and operational costs.

We believe that when LLPs were first introduced, a similar problem prevented insurance firms froms investing in property investment LLPs, but that problem was removed by the government following the introduction of REITs in the UK. It is anomalous - and possibly an accident - that the problem remains for pension funds.

What we're doing about it

We submitted a paper to the Treasury in June 2009 to highlight the issue, and we continue to raise the anomaly with HM Treasury and HM Revenue and Customs. We see this as a fundamentally deregulating request which should have no material impact on the Exchequer.

Property investment LLPs contact

Peter Cosmetatos

Director of Policy

(Finance and Investment)

pcosmetatos@bpf.org.uk

Property investment LLPs contact

Ion Fletcher

Senior Finance Officer

ionfletcher@bpf.org.uk

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The case for allowing Private Pension Fund Investment in Housing

May 2003