As the saga over the liquidity mismatch in open-ended property funds – which offer daily prices but in practice need months to sell assets to pay back investors who want their money – rolls on, the Financial Conduct Authority (FCA) suggested in August that investors give funds a 90-day or 180-day ‘notice period’ if they wanted to redeem their investment.

However, last week HMRC countered, saying the FCA’s proposal ‘runs contrary to the ISA legislation which requires account holders to be able to access the funds or transfer them to another ISA within 30 days of making an instruction to their account manager’, making property funds ineligible investments.

Rather than banning ISA investors from holding property funds altogether, the department is considering a ‘middle way’ to mitigate the impact on ISA account holders and managers, allowing them to keep existing investments in open-ended funds within an ISA while prohibiting new investments in such funds.

It warns: ‘This type of property fund needs to hold a significant cash balance otherwise it might not have time to sell properties to pay investors who can request their money back at short notice. If a fund runs out of cash, this can cause it to suspend dealing.’

The FCA’s consultation period ended on 3 November while, HMRC has given investors and managers until 13 December.

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