UK Funds Remain Competitive
Monday, May 03, 2010

The UK is now a competitive fund domicile, offering all types of investors a wide range of well-governed, well-managed and tax-efficient funds, according to the Investment Management Association (IMA).

Recent and significant changes to both legislation and the approach of the UK authorities have reversed the previously widely-held view that the UK is not attractive as a fund domicile, says the IMA, the trade body for the UK's GBP3 trillion asset management industry. Furthermore, there are further positive developments under discussion, the IMA observes.

Julie Patterson, Director, Authorized Funds & Tax at the IMA, confirmed  in her keynote speech at the 3rd Annual Global Financial Services Centre Conference in Dublin on April 28 that:

"The UK's tax regime for authorized funds was unnecessarily complex. Tax-paying investors pay the same amount of tax as if they had invested direct, but tax-exempt investors (such as pension funds, charities and ISA investors) could not recover the tax paid in the fund. Also, there was concern about the lack of consultation, trust and understanding of and between the funds industry and government officials. This is no longer the case."

"There have been significant changes to legislation, including the introduction of tax-efficient securities and property funds, certainty that authorized funds are taxed as investing not trading (so that their capital gains tax exemption is secure), and a workable regime for institutional funds."

"There is a new dialogue with and approach to the industry by government officials, with open consultation and a refocusing of expertise into dedicated policy and operational teams. Firms that have engaged in discussions with officials over the past year or so have commented very positively on the new approach."

Patterson also noted that there is now parity of treatment of distributions from UK and offshore funds, and an easing of the fund-specific Stamp Duty Reserve Tax (SDRT) regime, which has tended to put off continental European investors from investing in a UK fund. Charged at a headline rate of 0.5%, the IMA says that in practice SDRT costs on average 5 basis points per annum and is therefore broadly comparable with charges faced elsewhere. Its complexity as well as its headline rate, however, have both been disincentives to invest in UK funds.

In addition, the UK's extensive double tax treaty network continues to enable authorized funds to secure treaty benefits, which is an advantage over other fund domiciles and benefits investors in improved returns, Patterson observed. And there are further improvements under discussion, including the introduction of tax-transparent contractual funds, an onshore hedge fund regime and in relation to funds investing in other funds, she said.

Lastly, Patterson told the conference that the UK's unique requirement for complete independence of the manager and the depositary, which performs an active oversight role by qualified staff, has proven to provide "a robust governance framework."

"It has stood the test of the credit crunch," she concluded.