»Ê¹ÚÌåÓýapp

»Ê¹ÚÌåÓýapp need for special rules for PAIFs that are also QIS (regulation 69Z9 SI2006/964)

»Ê¹ÚÌåÓýappre are special rules in place to reduce the scope for extracting profits of the tax-exempt business as interest instead of property income distributions. »Ê¹ÚÌåÓýapp rules apply to PAIFs that are QIS. »Ê¹ÚÌåÓýapp reason that there is no need for a similar tax rule for other PAIFs is that the Financial Services Authority restricts their borrowing to reduce risk to the investors.

»Ê¹ÚÌåÓýapp Income to Financing Costs calculation

Regulation 69Z9 SI 2006/964 sets a limit on the ratio of the net income of the tax exempt property income business (PIB) to the company’s financing costs. This works as follows:

1. Check whether the limit has been breached by dividing ‘Income� by ‘Financing Costs�.
2. Where the result of the calculation is less than 1.25 then the limit is breached.
3. If the limit is breached, a tax charge by reference to the excess financing costs is charged on the residual part of the business of the QIS.

»Ê¹ÚÌåÓýapp meaning of ‘Incomeâ€�

‘Income� means the amount of the net income of the Property Investment Business arising in the accounting period, before the set-off of capital allowances, losses brought forward from a previous accounting period, or amounts taken into account as debits or credits of loan relationships and derivative contracts.

»Ê¹ÚÌåÓýapp meaning of ‘Financing Costsâ€�

‘Financing costs� means the amount of the financing costs incurred in the accounting period that relate to the Property Investment Business (see IFM04130).

Regulation 69Z9(7) SI 2006/964 defines “financing costs� for the whole of this regulation as those costs that would generally be considered to be costs arising in respect of a financing transaction under GAAP.

»Ê¹ÚÌåÓýapp charge to tax

»Ê¹ÚÌåÓýapp rules for determining the amount of the tax charge where the limit of 1.25 is breached are detailed on the following page (IFM04355).