Treasury gives boost to Oeics

Two new pieces of regulation concerning UK Oeics for overseas investors will enable the UK to compete more effectively with offshore centres.

The Treasury has announced it will remove an Inheritance Tax (IHT) charge on non-resident investment in the shares of UK-domiciled Oeics and authorised investment trusts.

It will also relax a requirement for non-resident investors to sign a form of declaration before receiving gross interest payments from Oeics.

The move by the Treasury was to make UK Oeics more attractive to foreign investors. By removing these obstacles it will allow UK fund managers to compete on an equal footing with overseas rivals.

Overseas investors are, in theory, liable to inheritance tax on their Oeic and investment trust holdings, because they are regarded as being situated in the UK for tax purposes on the investor's death.

According to the Treasury, competing centres do not charge tax in parallel circumstances. Removing the potential inheritance tax charge will enable UK managers to compete more effectively with overseas fund providers.

In general, investors receive interest under deduction of tax, but overseas investors can receive interest gross when they sign a declaration that they are non-residents.

According to the Treasury, these arrangements no longer work well with the commercial structures for marketing funds in Europe, where typically investments are held by corporate nominees, such as banks, on behalf of the real investor.

Jonathan Crowther, head of investment services at Abbey National Offshore, said overseas investors will benefit from the legislation and it will open up tax planning opportunities for UK expatriates. Crowther questions whether this initiative marks the first step in an overall review of the UK's investment industry including a review of the offshore funds tax legislation, the possible launch of UK hedge funds and a review of insurance wrappers tax legislation.

Bill Hogan, head of international tax at Baker Tilley, said 'The decision by the treasury on removing the potential IHT on UK Oeics was surprising and will allow the UK to compete on a more level playing field with their offshore rivals.'

The changes are expected to take place in the next Finance Bill.

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