tax & jurisdiction
Non-residents who make use of UK-based investment managers will have their exemption of UK tax liabilities extended, following minor changes to rules in the Finance Act 1995 and the Finance Act 2003. The scope of the changes, which will apply from 12 September, is to reflect developments in the financial markets.
There are long-standing tax rules (known as the investment managers' exemption), which mean, provided strict conditions are met, non-resident investors do not risk being exposed to unexpected UK tax liabilities.
One of the conditions set out in the tax rules is that the business carried out by investment managers acting for non- residents must be limited to particular kinds of investment transactions.
'The definition of such transactions has been overtaken by developments in the financial markets,' noted the Inland Revenue in a statement. It added that as a result, certain transactions, which are commonplace today, are not covered by the investment managers' exemption.
'The rules do not offer additional tax privileges to non-residents, they merely make it clear that the general rules limiting non-residents' exposure to UK tax will be satisfied provided certain strict conditions are met,' the Inland Revenue pointed out.
The definition of investment transactions has been updated in the regulations which will enable investment managers to continue to offer a full range of services to non-residents including credit derivatives and other swaps. The first set of regulations relates to income tax liabilities of non-resident investors and the second set to corporation tax liabilities.
The updated definition of investment transactions can be found in section 127(12) of the Finance Act 1995, which now includes financial swap transactions such as credit derivatives.
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