Budget announcement paves way for UK domiciled funds to compete on level with offshore funds

News - Tax

Written by Ray Clancy

Thursday, 25 March 2010 10:06

UK domiciled funds will be able to compete on a level playing field with offshore funds under an ammendement to the Schedule 19 Stamp Duty Reserve tax regime announced in yesterday's budget.

The tax affects only UK authorised funds and is in addition to SDRT paid on funds’ acquisitions of UK equities. In particular, it is currently paid by UK funds investing in other funds, even where those other funds are not invested in UK equities.

It is this element of the tax that is to be removed, which will enable UK-domiciled funds to compete on a level playing field with offshore funds, according to the Investment Management Association.

The Government has also announced that it intends to launch a working group to consult with industry on whether to establish a tax transparent contractual fund vehicle and that it will continue to work with the industry to refine the new regime for funds invested in non-reporting offshore funds.

‘We welcome this news. The amendment of Schedule 19 SDRT will remove a current unfairness. This, coupled with the introduction of tax transparent contractual funds, will enable the UK to compete as a domicile for the new UCITS master feeder structures and for hedge funds coming onshore,’ said Julie Patterson, Director of Authorised Funds & Tax at the IMA.

‘It follows on from improvements to the UK’s fund tax regime that IMA has secured over the past few years, including certainty that funds will be treated as investing not trading, tax efficient regimes for securities and property funds, and a workable regime for institutional funds,’ she added.

Patterson also pointed out that the more funds that chose to domicile in the UK rather than offshore, the more business and employment taxes are received by the UK exchequer.

‘The announcements are therefore good news for the competitiveness of the UK funds industry and for the UK. We also welcome the Government’s commitment to further discussion on reforms of Schedule 19 SDRT. We shall continue to argue for its complete abolition, because it is an additional tax on ordinary UK savers,’ added Patterson.