The UK-based Qualified Investor Schemes (QIS) and the whole specialist fund industry in the UK could...
The UK-based Qualified Investor Schemes (QIS) and the whole specialist fund industry in the UK could be under threat following proposals by the Inland Revenue for individuals to face a yearly tax on growth in any fund in which they have more than a 10% stake.
Present proposals by the Inland Revenue suggest individual investors could be hit with a 40% year-on-year tax without realisation of any parts of the fund, if they own more than 10% of it at any stage of their investment term.
Camilla Spielman, senior associate at Eversheds, said: "This is quite a problem. Specialist funds by their nature have substantial investors and this is a real issue. It is unlikely individuals will know if they own more than 10% of a fund. For example, if one investor redeems their share this could put another investor over the 10% threshold. It is beyond investor control."
Julie Patterson, director of regulation and tax at the UK's Investment Managers Association (IMA), says that the government's measures could also potentially be a problem for non-UK investors. She would go so far as to say that, as it stands, it makes no sense to invest in a QIS and there is a big question mark over the future of the vehicle.
The IMA believes fund managers will desert setting up funds in the UK in favour of Dublin and Luxembourg. A lot of fund managers are bringing funds into the UK under Ucits passports because the tax regime in the UK makes it uncertain for tax planning. Jurisdictions like Luxembourg and Dublin are seen as more stable. In any case, it is often cheaper to have one pan-European range than to split them country by country.
Spielman says that Eversheds has advised fund managers to move to Dublin or Luxembourg because of the instability in regulation in the UK. She is aware of fund management groups who have already gone to Luxembourg and Dublin to establish more sophisticated funds because these jurisdictions are perceived as safer.
qualified investor schemes under threat
• Investors who own more than 10% of a QIS could potentially be hit with a 40% year on year tax
• Fund managers are threatening to use Dublin and Luxembourg as their main domicile to avoid the uncertainty of tax changes in the UK.
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