HM Treasury (“HMT”) published its ‘Review of the UK Funds Regime: A Call for Input’ in January 2021. The key objectives of the review were to look at options to boost the UK’s competitiveness as a location for asset managers and investment funds, and to support investments which were greater aligned to investors’ requirements. The asset management industry is important as it plays a critical role in economic growth by providing funds to businesses throughout various stages of the lifecycle.
The Government has already as part of the review, introduced a new type of FCA authorised open-ended fund structure known as the Long Term Asset Fund (“LTAF”) to enable investment in long-term, illiquid assets (available from 15 November 2021). Such assets include private equity, venture capital, real estate and infrastructure. The Government has also introduced a new tax regime for qualifying asset holding companies (“QAHC”) which will come into effect from 1 April 2022 – A&M has recently published an article on the draft legislation including the key tax benefits and considerations as well as how A&M can help found here. Many clients are considering the potential costs and benefits of relocating its companies to the UK under the new QAHC regime.
We set out below the main proposals included in HM Treasury’s Responses to the review to assist you in understanding potential changes.
Main Proposals included in the Review
Amongst the responses received, the most commonly mentioned were the need to address gaps in the UK’s availability of fund structures, a review of the VAT implications for fund managers as well as the introduction of the LTAF. The Government set out its plans for the following:
- To simplify and make more efficient the taxation of funds. To help achieve this, the Government will:
– Consult on options to simplify the VAT treatment of fund management fees – generally the VAT on fund management fees are irrecoverable under the current system;
– Review the genuine diversity of ownership (“GDO”) conditions – where met, tax benefits could apply for certain funds. The GDO conditions are based on the Offshore Fund Regulations 2009 and are in place to ensure that the fund is widely available, marketed as such and not limited to specific persons, group or groups of connected persons. There are specific requirements, i.e. a fund must produce documents available to investors and to HMRC which contain a statement specifying the intended categories of an investor, an undertaking that interests in the fund will be widely available and that the interests must be marketed and made available according to the rules; and
– Consider how to improve the tax efficiency in multi-asset funds.
- Broaden the range of UK’s investment products, which will include authorised fund structures permitted to distribute capital, and a new type of fund structure, referred to as the ‘unauthorised contractual scheme’ aimed at professional investors. A working group will be set up between the HM Treasury, HMRC and the FCA to work on permitting the distribution of capital by authorised funds and the Government will further explore options to include unauthorised contractual schemes in the UK’s investment products range.
- Look at opportunities to support the wider funds environment, by sharing more information on the fund authorisation process and by promoting the funds regime in the UK overseas.
- Set up a new workstream concentrating on further reforms to the Real Estate Investment Trusts (“REITs”) regime, which will also consider how the REITs regime and the new QACHCs regime will interact.
How A&M Can Help
Whether proposals are implemented are yet to be seen. A&M is here to work with you closely and can provide assistance in dealing with enquiries related to your existing or future fund structure.