IA welcomes launch of Charity Authorised Investment Fund Structure
Charities are set to reap millions of pounds in tax benefits and enjoy full FCA regulation on their investments following the launch of a new fund structure.
Charity Authorised Investment Funds (CAIFs) have been developed by a working group including the Charity Investors Group, the Charity Law Association and the Investment Association, the trade body for asset management firms working alongside the regulatory authorities.
The structures could save charities up to £12m a year* in VAT and offer the advanced protections afforded by an FCA-authorised fund.
They will continue to offer the same benefits as the existing unauthorised charity fund structure, the Common Investment Fund, which include the ability to smooth income levels over multiple years.
Common Investment Funds are estimated to have assets of £12.3bn** with 13,000 charities invested***.
The Charity Authorised Investment Fund offers the following new benefits to charities:
A charity fund structure that is authorised and regulated by the FCA, offering protection for investor charities, the majority of whom would be classed as retail investors.
The ability to enjoy the tax benefits available to charities while benefiting from the management-fee VAT exemption available to FCA authorised funds.
In addition to retaining the benefits of the existing unauthorised Common Investment Fund:
More flexibility on distributing income than ordinary authorised funds, including the ability to smooth income across multiple accounting years and for funds with a defined income target make payments from capital in order to provide a predictable income stream for charities.
The ability to have an independent advisory committee to represent the interests of charity unitholders.
Like the existing regime, CAIFs will only be open to investment from charities and will themselves be registered as charities and so enjoy full charitable tax status.
Plans to introduce the new fund for charities were first announced in the March 2015 Budget.
Peter Capper, Fund and Investment Risk Specialist at the Investment Association, said:
"We firmly believe that this is a positive development for the Charity sector and the effective management of Charity assets.
"This new structure combines clear tax efficiencies and full regulatory protection in a tailor-made product suited to the asset management industry's clients in the charity sector, which clearly need every advantage they can get in order to deliver for good causes."
Notes:
The Investment Association has made available a model trust deed, produced with the assistance of the Charity Law Association, available on its website along with a basic guide to the structure: http://www.theinvestmentassociation.org/investment-industry-information/policy-and-consultations/industry-guidance.html
More detail on the regulation of Common Investment Funds can be found on the Charity Commission website: https://www.gov.uk/government/publications/common-investment-funds-and-common-deposit-funds/common-investment-funds-and-common-deposit-funds-a-basic-guide-to-their-regulation#common-investment-funds-cifs---summary
* Source: State Street, based on Common Investment Fund assets under management as at 31st March 2016 and an average investment management fee of 0.5% per annum and assuming all existing CIFs convert to the CAIF structure.
** Source: State Street as at 31st March 2016.
*** Source: Charity Commission Guidance, according to 2012 annual returns.
