On 26 February 2025, the UK Government published its Unauthorised Co-ownership Alternative Investment Funds (Reserved Investor Fund) Regulations 2025 (the Regulations) alongside an explanatory memorandum.
The Regulations come into force on 19 March 2025 - the same time as the Co-ownership Contractual Schemes (Tax) Regulations 2025 - and underpin the introduction of the new Reserved Investor Fund (RIF), a UK-based investment fund vehicle, which is structured as an unauthorised co-ownership alternative investment fund (AIF).
RIFs have been developed with a view to allowing a broad range of investors, including pension schemes, to invest in illiquid assets such as commercial property and housing, while remaining sufficiently flexible for institutional investors to allocate to it.
What do the new Regulations do?
The Regulations extend provisions in sections 261M to 261O and section 261P(1) and (2) of FSMA 2000.
Currently, these provisions apply to investors in authorised contractual schemes. From 19 March, though, they will also apply to investors in UK-based RIFs.
In this context, 'UK-based' means that
the operator and depositary of the scheme are incorporated in, administer their affairs in and have a place of business in the UK and
the deed setting out the arrangements that constitutes the scheme is made under and governed by UK law and contains a statement to that effect.
As a result, only investors in RIFs (rather than unauthorised contractual schemes more generally) will gain the benefit of these modified rights, thereby enhancing the RIF's commercial viability from their introduction.
What's the background?
In the wake of Brexit, the UK Government undertook a review of the UK funds regime to enhance the UK's attractiveness as a location for asset management and fund domicile.
Through the review, a gap in the UK's existing funds range was identified for a new unauthorised contractual scheme:
open to all asset classes
available to professional and institutional investors (such as certified high net worth investors and both certified and self-certified sophisticated investors) but not to the broader retail investment market and
with lower costs and more flexibility than the existing authorised contractual scheme.
In April 2023, HM Treasury and HMRC issued a joint consultation on the possible introduction of a new Reserved Investor Fund (RIF) regime - our summary of the consultation paper can be found here.
In the March 2024 budget (and reiterated in the Autumn Budget of October 2024), the Government confirmed that it would proceed to introduce a restricted RIF and released further details on the tax rules that would apply to such funds. Our summary of the Spring Budget is here.
What is a RIF?
To paraphrase section 20 of the Finance (No. 2) Act 2024, a RIF is a co-ownership scheme which
(a) is not an authorised co-ownership scheme under FSMA 2000
(b) is an AIF, as defined in the UK's Alternative Investment Fund Managers Regulations 2013 and
(c) allows units in the scheme to be issued only to
a professional investor;
a large investor; or
a person who already holds units in the scheme.
Other conditions may be set out in subsequent regulations made under s. 20.
