UK government plans post-Brexit investment sector reform

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The government has presented far-reaching proposals to strengthen the international competitiveness of the UK £ 9.9 billion asset management industry with tax reforms and innovative fund structures, providing a roadmap for the future of the sector outside the EU.

A consultation document released Tuesday by the Treasury pledged to boost growth and jobs in the UK investment industry, a major source of export earnings and regional jobs, as part of Prime Minister Boris’ plans Johnson to fight regional inequalities.

“Increasing the number of funds located in the UK can also improve our economy, by supporting jobs outside of London,” said John Glen, Minister for the City.

He said reforms to the UK funds regime would spur new investment in environmentally friendly green technologies that would help meet the government’s commitment to achieve net zero carbon emissions by 2050.

UK-based mutual funds could be considered completely tax exempt, according to the consultation paper, which warned the approach would deprive the government of revenue.

Other potential improvements could be made to the tax rules applicable to multi-asset funds and real estate investment trusts (REITs).

“From a practical point of view, the UK system does not work for multi-asset funds,” said Rhiannon Kinghall Were, head of tax policy at Macfarlanes law firm.

The Treasury said the exit from the EU provided an opportunity to re-examine the approach to charging VAT on fund management services, prompting asset managers to domicile funds outside of the EU. United Kingdom in countries like Ireland and Luxembourg.

Arun Birla, tax partner at Paul Hastings, a law firm, said simplicity would be essential to the success of any reform, especially since the current UK arrangements were “administratively cumbersome”.

Improvements to speed up the authorization of mutual funds and Qualified Investor Programs (QIS) by regulators will also be considered as part of the consultation.

Few of the exchange traded funds are located in the UK, although ETFs are the fastest growing asset management industry. But the Treasury said the ‘redomiciliation’ of existing ETFs by moving assets from a legal entity in Ireland or Luxembourg to the UK was ‘unrealistic’ as this process would be costly for managers and could create tax obligations. for investors.

Industry watchers have also warned the government that UK retail funds may not be internationally competitive after Brexit due to the loss of passport rights that allowed UK-based managers to sell services across the EU.

The consultation will also examine whether the government should try to improve the UK’s reputation as a destination for alternative investment funds, which are more widely used by institutional investors.

“Allowing managers to invest in a wider range of asset classes and use more leverage would improve the attractiveness of the UK as a destination for alternative investment funds,” said Mark Stapleton, partner of the law firm Dechert.

Yash Rupal, head of UK tax practice at law firm Simpson Thacher, said the consultation was too narrowly focused.

“The clarity and certainty of the tax system is important. But the UK asset management industry is an award that many other countries would love to win. The proposed reforms should be more ambitious in scope, ”Rupal said.

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