In proposals announced in this year’s Budget, the papers will consult on the introduction of a direct tax exemption regime for UK authorised investment funds, the removal of tax barriers for Qualified Investor Schemes and tax efficiency improvements for investment trust companies.
Economic secretary to the Treasury Kitty Ussher says: “The Government is determined to ensure that the UK remains a competitive place to do business. The consultation papers published today are a step forward in improving the taxation environment for the asset management industry.
“We are determined to maintain momentum on improvements to the taxation of asset management to ensure the industry remains highly competitive in the face of new global challenges.”
The Investment Management Association has welcomed the consultation, which it says it brings UK authorised funds one step closer to being on a level playing field with offshore funds.
The IMA says the Treasury’s proposals for an elective tax regime for authorised funds would enable investors to pay the correct amount of tax on distributions.
It says this would mean that exempt investors, such as pension funds, charities and Sipp and Isa investors, would no longer be subject to tax at a fund level that they cannot recover.
IMA director of authorised funds and taxation Julie Patterson says: “The Treasury’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 per cent rule should make it more attractive to establish authorised funds for institutional investors in the UK. “
But the IMA is also calling for the Treasury to look at further reforms such as the abolition of schedule 19 Stamp Duty Reserve Tax on fund units and changes to ensure funds are treated as investing not trading for tax purposes.
The Association of Investment Companies also welcomed the news.
AIC director general Daniel Godfrey says: “The current rules limit the ability of investment trust companies to hold substantial stakes in bonds because of adverse tax consequences.
“Now, the sector will have more options where investment trust companies are seeking to deliver income for their shareholders. Today’s proposals will enhance the attractions of buying bonds and could allow investment trust companies to appeal to a wider range of investors.”
He adds: “Trusts will not be forced into the new tax arrangements if they see no need to change their existing approach.”