Budget proposals to review tax regime for funds could see UK challenge Luxembourg, the Channel Islands and Cayman Islands

Government proposals to review how asset holding companies for private equity, credit and property investment funds are taxed could create an opportunity for the UK’s financial services industry, says Jason Collins, Tax Partner, of Pinsent Masons, the international law firm.

At present, the complex UK tax rules relating to fund structures means that PE and other alternative investment funds normally prefer to locate asset holding companies in jurisdictions such as Luxembourg, the Channel Islands or the Cayman Islands.  One of the core objectives of a fund  is to ensure any collective investment is taxed in the same way as a direct investment is to ensure that an additional layer of tax is not introduced via the intermediate fund vehicle. At present other jurisdictions appear to have  more effective regimes in this respect .   The Government appears genuinely interested in understanding – and removing - the tax barriers to the use of such intermediate vehicles in the UK.

Collins of Pinsent Masons says: “If we can remove some of the tax drawbacks that exist in the UK then we could see a return of financial and professional services jobs from Luxembourg to London and Edinburgh . That would be the kind of post-Brexit boost that the UK could really benefit from.
“London is a leading centre for fund’s and asset management so it would make a lot of sense to encourage asset holding companies for alternative funds to be based here as well.
“But there remains a danger that such changes could be accompanied by excessive regulation around eligibility. If the reforms are ambitious enough, they could be a real game changer.”