Press Release

UK authorised funds get one step closer to a level playing field with offshore funds

28 July 2008

IMA has welcomed today's consultation paper by HM Treasury (HMT) as the basis for a significant step forward in helping to close the gap between UK authorised investment funds and offshore funds.  The proposals are the culmination of IMA's calls for tax reform in order to allow the UK to compete more effectively with other offshore domiciles.

HMT's consultation on an elective tax regime for authorised funds would enable investors to pay the correct amount of tax on distributions.  Therefore, exempt investors, such as pension funds, charities and SIPP and ISA investors, would no longer be subject to tax at the fund level that they cannot recover.  Individual UK taxpayers would not be affected by the changes. 

IMA also welcomes a consultation by HMT to replace the Qualified Investor Scheme (QIS) 10% substantial holding rule. Operation of the rule has acted as an obstacle to the use of QISs.  The amendment proposes replacing the 10% rule with a ‘genuine diversity of ownership' condition, which will deliver the underlying policy intent. 

Commenting, Julie Patterson, Director of Authorised Funds and Taxation at IMA, said:

"HMT's consultation is good news as the proposals would bring UK funds a significant step closer to allowing them to compete with offshore domiciles.  In particular, these proposals coupled with replacement of the QIS 10% rule should make it more attractive to establish authorised funds for institutional investors in the UK.

It is apparent that the government is listening to the industry and I hope they will continue to work with us on the further reforms which are required to level the playing field for UK authorised funds.  

Two key reforms that would achieve this are: the abolition of Schedule 19 Stamp Duty Reserve Tax on fund units, which is onerous to administer, unique to UK funds and raises minimal tax revenue; and certainty that funds will be treated as investing not trading, for tax purposes."

HMT's consultation on an elective tax regime for authorised can be found here

HMT's proposals to replace the holding rule for Qualified Investor Schemes can be found here