New tax regime for UK asset holding companies

In a very exciting development for the UK funds industry, the UK Government has released its final policy paper for the new Asset Holding Companies regime, the cornerstone of its review of the UK funds system.

This measure is London’s bid to become the jurisdiction of choice for European asset holding companies, by combining a tax regime competitive with Luxembourg and Ireland with the UK’s financial infrastructure and extensive double tax treaty network. Since so many fund managers are themselves based in the UK, bringing the fund vehicles they manage and invest onshore would remove many convoluted constraints around decision making / board presence imposed by local tax “substance” requirements. However, the proposals are expected to have wider appeal.

The regime is relevant for most kinds of unlisted investment fund, including credit funds, private equity funds and real estate funds (where it should combine with anticipated changes to the UK REITS regime next year) and for institutional investors investing in these asset classes. The Government intends the regime to be available for existing funds by election.

Qualifying asset holding companies gain a wide suite of tax benefits consistent with the regime’s self-declared aim: to recognise circumstances where intermediate holding companies are used to facilitate the flow of capital, income and gains between investors and underlying investments, so that investors do not suffer additional tax from participating in these structures and intermediate holding companies pay no more tax than is proportionate to their (limited) activities.

Overall, the regime is very generous, with the main limits being drawn at the taxation of profits from trading activities, UK land and intangibles. The funds industry will no doubt be watching its launch with interest.

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