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Review of the UK funds regime

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The Treasury has published a summary of responses outlining feedback the government received on the call for input on the UK funds regime.

At Budget 2020 the government launched a wide-ranging review of the UK funds regime to consider reforms which could enhance the UK’s attractiveness as a location for asset management and for funds in particular. Two key objectives have already been taken forward in Finance Bill 2022 – the new tax regime for qualifying asset holding companies (QAHCs) in certain fund structures and changes to the tax rules for Real Estate Investment Trusts (REITs).

In January 2021, the government consulted on the wider components of the review and has now published a summary of responses. The first question focused on the relative prioritisation of the proposals. Areas most frequently cited as the top three proposals for government implementation were:

  1. Introduction of long-term assets funds (LTAF) as a new fund vehicle to support investor access to longer-term, less liquid assets.
  2. Addressing gaps in the UK’s current offering of fund structures for professional investors.
  3. A review of the VAT treatment of fund management, specifically to ensure that the treatment of management fees is competitive, that uncertainties are removed and that the case for zero-rating is considered.

Chapter 2 of the summary of responses sets out in detail the replies to the remaining 37 questions on the UK’s approach to the taxation and regulation of funds, and on potential opportunities for reform.

The government, and the FCA where applicable, proposes the following next steps:

  • a review of the genuine diversity of ownership (GDO) condition;
  • further consideration of options to improve the tax efficiency of UK authorised funds, and in particular multi-asset funds;
  • a workstream focusing on further reforms to REITs, which will also consider the interaction of REITs with the new asset holding companies regime;
  • further engagement with industry to explore what authorised fund managers would find helpful in terms of additional information regarding the application process;
  • a Treasury, HMRC and FCA working group to progress work on permitting the distribution of capital by authorised funds;
  • promotion of the UK’s fund offering abroad, including working with industry on further opportunities where possible; and
  • further work to explore options for the introduction of a new unauthorised contractual scheme fund structure.

The Treasury and HMRC are also working towards a consultation on the VAT treatment of fund management fees as part of the UK funds regime review.

Zoe Arnautov, tax partner at Simmons & Simmons, welcomed the news that ‘the government is seek to take forward proposals to make the taxation of funds simpler and more efficient.’ The fact that the government will shortly publish its long-awaited consultation on the VAT treatment of fund management, was also welcome as ‘it is a crucial element in making the UK’s fund regime internationally competitive’. 

However, Arnautov thought it disappointing that, given its importance to the competitiveness of the UK funds market, ‘the response document rules out the possibility that the forthcoming consultation will consider the possible introduction of a VAT zero-rate for fund management fees for fiscal reasons. Instead, the consultation will examine other, as yet not identified, options to improve and simplify the VAT regime for fund management. Although positioned as simplification of the current regime, whatever is proposed will likely provide less clarity than zero-rating, and industry feedback suggests that this may inhibit the UK’s desire to be seen as a jurisdiction in which to domicile investment funds, particularly where those funds are managed domestically.’

 

Issue: 1564
Categories: News
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