Osborne Clarke responds to call for input on UK funds regime review
Published on 27th Apr 2021
Reform of the UK funds regime is welcome but should focus on improvements to existing UK fund vehicles alongside any commitment to new vehicles
The government announced in its Budget 2020 that it would carry out a review of the UK funds regime to consider reforms to enhance the UK's attractiveness as a location for investment funds and their management, in particular. It launched its call for input on the wider review of the UK funds regime which covers direct and indirect tax and relevant areas of funds regulation on 26 January 2021.
In our response to this call for input on the wider review of the UK fund regime we looked at both the UK's approach to funds taxation and the opportunities for wider reform. We highlighted that the top priorities for government implementation should be: to ensure any review is holistic and joined up so that any reform works from a tax and regulatory perspective; to address certain issues present in relation to English limited partnerships as fund vehicles; and to introduce an unauthorised fund regime suitable for professional and institutional investors investing in real estate.
We also responded to the specific questions raised by the government in relation to recent reforms to UK funds taxation, how tax-exempt funds may affect the competitiveness and attractiveness of the UK funds regime and specific considerations in the context of the UK's double tax treaty networks.
Alongside this call for input the government's review of the UK funds regime also encompasses two separate workstreams: one which looks at the taxation of asset holding companies in alternative funds structures (AHCs) and the second looking at the VAT treatment of fund management fees. The government published its latest consultation on the taxation of AHCs in December 2020 (which closed in February 2020) and you can read more about our response to that consultation here. We had hoped that the government would have published its consultation on VAT on fund management fees on "Tax Day" on 23 March this year (when a raft of other consultations were launched), but we are still awaiting its publication.
Osborne Clarke comment
While we welcome the government's wider review of the UK funds regime, we highlighted in our response that our experience is that investors are drawn to the familiar and established vehicles and they are by and large reluctant to try new vehicles and untested regimes until these have been embedded. Consequently the success of any new vehicle may turn on a critical mass of initial managers familiar with the UK market prepared to use it with other following on behind (assuming the vehicle is successful). By contrast investors respond well to increased flexibility and reforms to a known vehicle and so our response urged the government to consider seriously reforms to the existing fund vehicles to reduce known barriers and disincentives alongside any commitment to new vehicles.
If you would like to discuss the call for input and our response in more detail, please speak to one of the contacts below.