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Authorised Contractual Schemes (ACSs)

Welcome to our ACS page, which sets out current information on ACSs and the specialist advice our team can offer.

The Eversheds Sutherland team was heavily involved in the development of ACSs including influencing their legal structures, tax and authorisation regimes, and also by drafting the Investment Association's industry-standard ACS deed.

We have since acted on the establishment of five of the first seven co-ownership tax transparent funds to launch, including the first securities fund and property fund and the first local government pension schemes. We also acted for either the depositary or host in the other two ACSs. No authorised limited partnerships have yet been established.

About ACSs

Authorised Contractual Schemes are also known as tax-transparent funds. The regime was introduced in the Collective Investment in Transferable Securities (Contractual Scheme) Regulations 2013, and the FCA’s rules for the authorisation of ACSs.

The idea behind the ACS regime was to bring the UKs fund range in line with those offered in jurisdictions such as Luxembourg and Ireland. The regime puts their investors in the same position (or better) with regard to income and capital gains taxes then they would have been in if they had invested directly in the underlying fund assets. In particular, it generally enables investors to obtain their correct rates of withholding tax under applicable double tax treaties (which is not always the case if they invest in other pooled arrangements).

ACSs can be established in two legal forms: (i) as authorised co-ownership schemes, and (ii) as authorised limited partnership funds. Both these forms are available as UCITS, NURS and QIS.

ACSs were designed to be institutional funds. Direct investment in an ACS is limited to investors who either invest a minimum of £1 million or are professional institutional investors. Other investors can access an ACS through feeder funds.

Authorised co-ownership funds

In a co-ownership fund the investors have interests in the scheme property as tenants-in-common (if formed under English law or as common property of the participants if Scots law applies), although it is held on their behalf by a depositary. The fund is essentially a contract entered into by each investor with the operator (the ACS manager) and the depositary of the fund.

The FCA’s Handbook of Rules and Guidance governs authorised co-ownership funds, in particular in the Collective Investment Schemes Sourcebook, COLL. Accordingly they must have a prospectus along the same lines as for other authorised funds as well as the ACS deed. The main differences between ACSs and other authorised funds are not in their constitutional documents but rather in their administrative arrangements.

Authorised limited partnership funds

Authorised limited partnership funds are broadly similar to other UK limited partnerships. They benefit from (i) investors being able to redeem interests in the fund without remaining liable for the partnership’s debts so there is no need to structure partnership interests as loans, (ii) the general partner not being liable for the debts of the limited partnership unless guilty of manifest wrongdoing so it is possible to use the same company to manage OEICs, authorised unit trusts and ACSs, and (iii) not needing to publish partnership changes. An authorised limited partnership fund therefore operates similarly to other collective investment schemes.

Tax

Both types of ACS are transparent for UK income tax purposes so they are not subject to income or corporation tax on their income. Instead, the unitholders are liable to tax where appropriate on their proportionate interest in the underlying income. The ACS's tax transparency is intended to allow unitholders in them to benefit from reduced rates of withholding tax under double tax treaties between each unitholder’s own state and the state in which each investment is located.

The position regarding capital gains realised on the disposal of investments by authorised co-ownership schemes is similar, that is, there is no tax in the fund itself. However, for simplicity, UK taxpayers are taxed as if their interest in the fund was an asset for capital gains purposes (and not the underlying assets); this is not relevant to investors outside the UK tax system.

The UK tax position of authorised limited partnerships is the same as other UK (and non-UK) partnerships; they are tax-transparent for UK income and capital gains tax purposes.

Co-ownership ACSs also benefit from favourable UK stamp tax treatment including seeding reliefs for securities and property (except for land and buildings transation tax).. They also benefit from exemption from VAT (value added tax) on their management fees like other UK authorised investment funds.

For further information, including our firm’s briefings and publications, please follow the links to the right of this page or contact one of our specialst advisers.

How Eversheds Sutherland can help with ACSs

Eversheds Sutherland was instructed on the design and launch of five of the first seven ACSs in co-ownership form and worked on the remaining two in different roles (advising a depositary, acting as specialist adviser to a host ACD and administrator, and acting on a substantial umbrella ACS’s derivative transactions). We are currently actively working on three more ACSs.

• Planning and structuring. We can assist with the preparatory steps your business needs to undertake before the launch of an ACS, including experience fund structuring and tax advice.

Scheme documents and authorisation. We drafted the IA’s industry standard ACS deed and can prepare and negotiate the relevant scheme documents, ancillary contracts, and manage the FCA authorisation process.

• Tax advice and planning. Our funds tax team can advise on every aspect of the ACS regime for both securities and property funds.

• Ongoing regulatory and compliance management. Our team can assist with future changes to the scheme and any regulatory or investor notifications required.

• Depositary advice. Our dedicated depositaries team can advise depositaries on relevant issues and can negotiate and prepare depositary agreements and ancillary documentation.

• Derivatives advice. Our derivatives team advises authorised funds, including ACSs, on their derivatives strategies, collateral, security arrangements, agreements and on compliance with their regulatory obligations.