The fund management firm said it had successfully converted the unit trust into a PAIF, which means a large proportion of existing investors will no longer incur the 20% corporation tax that previously applied on income from their holdings.
The tax exemption benefits investors holding the fund through ISAs and pension schemes and M&G believes this to be the first retail fund to convert into a PAIF.
Under the conversion the fund will retain its name, M&G Property Portfolio, and investment process.
The investment objective of the fund will also stay the same; aiming to maximise total return through investment mainly in commercial property.
M&G’s PAIF will invest in a diversified portfolio of commercial property, mainly in the UK.
PAIF to progress
A 2011 paper from KPMG looking at the PAIF tax regime said it had not been as successful as originally envisaged and in the three years since it had been launched there had been only three HMRC authorisations for PAIFs.
“Clearly the economic downturn in property has been a significant reason for the lack of new PAIFs,” it said.
The report assessed a number of factors which could be impacting the PAIF take up, including pricing and regulatory status. (For more information, click here.)
It concluded: “The PAIF regime may still represent an attractive vehicle for a UK manager wishing to raise an open ended authorised property fund that is suitable for both UK retail and UK institutional tax exempt investors, provided the operational hurdles in relation to streaming are resolved.
“But until market conditions for raising new funds improve and the industry adopts the changes necessary to overcome the existing issues, there is unlikely to be a rush of new PAIFs to market.”
Problems in the guise of the platform industry’s inability to support the PAIF structure have also been reported.
Nevertheless, last year Hearthstone launched a PAIF, which now has an RDR-ready clean-fee share class, and Schroders converted its flagship UK core property fund (SEPUT) into a PAIF.
