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1st August 2014

Henderson Global Investors

Henderson propose structure change for Elite Rated UK Property trust fund

Henderson Global Investors have written to shareholders in the Henderson UK Property Trust, proposing that they change the fund structure from a Unit Trust to an OEIC, before eventually converting the fund to a PAIF structure.

At first glance this seems a little confusing but it is actually quite easily explained. Henderson would like to gradually transition the fund to a new structure, which is more tax efficient for some types of investors, including those who want to invest via an ISA or a Junior ISA. In particular, these investors will no longer incur the 20% tax, which would previously have been applied on income received from the property investment. This means the yield on the fund should increase.

For example, a property fund with a historic yield of around 3% last year would see that yield increase to around 4%, if it converted to a PAIF and got the extra rental income tax advantage. This means an investor with a full ISA allowance in the fund today would get approximately £450 in income and this would rise to around £600, should the fund convert to a PAIF. All things being equal, the PAIF structure is worth about £150 per annum to an ISA investor*. So good news really.

There is one problem at the moment, however. Because PAIFs have multiple income streams (rental, dividend and income from fixed income and cash) few fund platforms are currently able to offer them, so in some cases, fund managers have had to introduce what are called 'feeder funds' as a temporary measure until platforms adopt them onto their systems. These feeder funds do not benefit from the extra tax advantages. Something to bear in mind, if you are thinking of investing in a property fund. If you want to buy the PAIF structure, you may need to do so directly through the fund company. Your intermediary will be able to help you do this.

Back to the Henderson fund and, as a result of the conversion, income distributions would move from being paid twice a year, to quarterly. The management team, investment objective and policy would all remain unchanged.

  • This calculation was provided by Ignis, and was based on the Ignis Property fund, which converted to a PAIF structure last year.