Investment trusts and non-life pension funds managed on an outsourced basis will see their costs f...
Investment trusts and non-life pension funds managed on an outsourced basis will see their costs fall as a result of tax-exemptions outlined in the pre-Budget report.
For the investment trust industry alone, the AITC believes an extension of a VAT exemption on management fees, which currently only applies to life funds, unit trusts and Oeics, will equate to a £30m annual saving for the closed-end industry.
Self-managed trusts such as the Scottish Investment Trust are not be effected by the proposed changes as they pay no external management fees.
The Sandler Review, published earlier this year, recommended extending the VAT exemption allowed already on the management fees for unit trusts, Oeics, and pension funds run by life companies to investment trusts and non-life pension funds.
HM Customs & Excise is consulting on the VAT exemption proposals, with any changes to the system to be implemented by April 2003.
Investment consultant Jeffrey Mushens said: 'Institutional fund managers charge VAT on their management fees but if it is done through an insurance contract there is no VAT applied.'
As insurance contracts are the remit of life offices, it is considered to be unfair to competing non-life groups, an anomaly that is expected to be addressed by the reforms.
The Government has tried to push the Independent Pension Account (IPA) to extend pensions into the non-life market but has made little headway, in part due to the lack of tax exemptions available.
The proposed reforms will also mean management fees levied by third-party investment managers will be VAT-free.
'There was a statutory exemption for management fees paid by an authorised unit trust or an open-ended investment company' said IMA tax adviser Nathan Hall.
'Customs formerly argued the exemption wouldn't stretch if the services were delegated to the third party.'
However, Abbey National and Prudential both recently won test cases against Customs on this point, so now if management services are delegated, the exemption passes down the chain.
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