Multi-asset funds that are classified as “interest-paying” can no longer invest in real estate investment trusts in the wake of HMRC guidance released this year, Fidelity Worldwide Investment says.
The firm’s Multi Asset Income fund sold its small holding in a UK Reit recently because of its interpretation of the tax guidance.
A Fidelity spokesman says the fund is considered “interest-paying” by the taxman. He says: “There’s a difference in tax treatment between interest-paying and dividend-paying funds, and multi-asset income funds which are interest-paying are now unable to buy UK Reits.”
As a result of the guidance, Fidelity will invest instead in property through direct property funds and funds of Reits.
Fidelity multi-asset income manager Eugene Philalithis says: “It’s a tax constraint that we can’t get around but in general, our allocation to property has been low across all our funds.
“We feel the valuations in the Reit sector are very high and that has pushed yields down and we think values are beyond fair value for the moment, so we’re avoiding them.”