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IMA: Axing double stamp duty is long overdue

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Almost all investors in UK equities pay Stamp Duty Reserve Tax, no matter the investor’s nationality or type. UK funds are no exception.

However, until this month, UK funds also used to pay an additional form of SDRT. The amount was based on a complicated calculation based on unit sales and purchases and the fund’s assets. The actual amount of tax averaged only 0.04 per cent.

It was introduced to prevent avoidance by investors buying and selling fund units rather than directly buying and selling UK equities.

Since the introduction of this double taxation in 2000, the UK has lost billions of pounds of tax revenues.

Funds domiciled elsewhere in Europe do not pay this additional tax. So more and more funds have moved from the UK or been set up overseas.

The UK did not simply lose the additional 0.04 per cent. The lose of associated jobs means the Exchequer lost employment taxes and other revenues. In 2007, an independent report calculated that for every £1bn of funds established outside the UK, over £700,000 is lost each year in taxes.

There are now about £800bn of funds domiciled elsewhere that could have been established in the UK. That means hundreds of jobs lost and an annual loss in tax revenues of over £500m, dwarfing the amount of additional SDRT paid by UK investors in UK funds.

When the Chancellor announced the abolition of this tax in last year’s Budget, some commentators described it as a tax freebie for hedge funds and fund managers. Wrong. It was a double hit on UK funds (not hedge funds), it was paid by investors, and it has lost UK plc jobs and billions of tax revenue. Its abolition is a no-brainer and will benefit investors and the competitiveness of the UK.

Julie Patterson is regulatory affairs director, investment funds & retail, at the Investment Management Association

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