New investment vehicle for charities to be overseen by Financial Conduct Authority

Announced in the Budget today, the charity authorised investment fund structure will also be exempt from VAT on management fees

Financial Conduct Authority
Financial Conduct Authority

A new investment vehicle for charities, which will have better regulatory oversight than existing common investment funds and an exemption from VAT on investment management fees, has been announced by George Osborne, the Chancellor of the Exchequer.

Osborne announced in today’s Budget that the government was working with the Financial Conduct Authority, the Charity Investors’ Group and the Charity Commission to introduce the new charity authorised investment fund structure.

CAIFs will be able to register as charities with the commission, with the charitable purpose of "promoting the efficiency and effectiveness of charities by enabling participating charities to carry out their purposes more economically and efficiently", according to a CIG statement.

The statement said the new funds would "be allowed to widely replicate the main benefits of the existing common investment funds structure presently administered by the Charity Commission", but would include new benefits, including greater protection through regulation by the FCA.

Existing common investment funds – which are unregulated investments – will be allowed to convert to the new status. Forty-five CIFs are commercially available; more than 13,000 charities have invested in them and they have total assets of £13.2bn. The CIG calculates that the VAT exemption for management fees of CAIFs could save the sector a total of £13m.

Discussions about the new CAIF have involved the CIG, the Charity Commission, the FCA, the government and the Charity Law Association, and have been going on for more than a year. It is not immediately clear when the CAIF structure will be ready to launch.

A spokeswoman for the Charity Commission said: "We warmly welcome the proposal for authorised investment funds for charities to be regulated by the Financial Conduct Authority. "A joint Charity Commission and Treasury consultation on common investment funds raised this some years ago. Recently we decided in principle that authorised investment funds could be constituted and registered as charities in certain circumstances."

A spokesman for ShareAction, the charity that campaigns for responsible investment, said: "We congratulate the Charity Investors’ Group for initiating the discussion on this important initiative, which has led to the government’s announcement today. At ShareAction we are always encouraged when the government recognises the unique position and role of charities in making investments, and we look forward to seeing the development of these proposals over the coming months."

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