The boost given to the UK’s investments industry by legislative changes announced in the budget means the country is now a “serious contender” as a funds domicile.
The body which represents the interests of the asset management sector, the Investment Management Association (IMA), has for several years been lobbying for key changes to the way investment funds are treated by the UK tax authorities so that the industry can, in its words, compete on a more a even footing with rival jurisdictions such as Luxembourg and Dublin.
Among the budget announcements was that a new Tax Elected Funds Regime would be created to make UK funds more competitive in the UK and internationally based on the way they are taxed – a move that in particular makes UK-domiciled property funds more attractive.
There will also be legislation clarifying that fund transactions are classed as investing, rather than trading, the latter being taxed significantly more heavily. Uncertainty over both of these points was, according to the IMA and investment commentators, leading to a haemorrhaging of assets and fund business to rival centres.
Work on a protected cell regime designed to protect investors in sub funds from the risk of “cross contamination” if another sub fund goes bust is also being undertaken, it was announced in the budget.
Julie Patterson, director of authorised funds and tax for the IMA, said: "The statement that the ongoing strength of the asset management sector is a priority for the Government is very welcome.
“The IMA fully endorses the view that one of the most valuable outcomes of the joint working group on UK fund tax reform has been the improved consultation and strengthened trust between the industry and Government.
“This package of reforms, coupled with the UK’s fund regulatory regime, make the UK a serious contender as a fund domicile, for UK and overseas investors.”
Alternative investments
Separately, the IMA has backed moves to introduce an EU directive governing European cross border distribution of non-Ucits, alternative investment funds, chiefly hedge funds and private equity vehicles, to “professional” investors in Europe. Currently cross-border fund regulations are limited to covering primarily retail funds.
Jarkko Syyrilä, IMA director of international relations, said: "The IMA has long been calling for firms to be able to distribute hedge funds, property funds, and other non-harmonised funds cross-border to institutional investors; the proposed Directive incorporates this.
"If the Directive comes to fruition, EU authorised AIFMs will be able to distribute both EU and non-EU domiciled funds to professional investors in any Member State. These changes to the rules will offer more choice for Europe’s professional investors and further strengthen Europe’s fund management industry.
“However, waiting another three years until third country funds can be distributed in Europe is too long. European investment funds are marketed around the globe with remarkable success. We are fully convinced that open markets will be of benefit to Europe. IMA will be engaging with all the relevant authorities to discuss the draft directive in further detail."
