Collective Investments: is the new tax regime a step in the right direction?

Collective Investments: is the new tax regime a step in the right direction?

Tim Cornick and Andrew Loan, partners at Macfarlanes LLP, consider the UK’s tax regime for collective investment schemes and suggest that although a lot of work has been done to make the regime more attractive, there is still much to do.


What’s the change in the rules?


Assets held by investors as part of certain tax transparent collective investment schemes are will not be chargeable assets from 8 June 2013. The investor’s interest in the scheme will instead be treated as if it were a chargeable asset. Certainty of treatment is also provided for capital gains purposes for investors in all types of collective investment schemes involved in a reorganisation or reconstruction. (Collective Investment Schemes (Tax Transparent Funds, Exchanges, Mergers and Schemes of Reconstruction) Regulations 2013, SI 2013/1400)


What do the new rules on the tax treatment of the contractual fund vehicle seek to achieve?


Andrew Loan (AL): The new contractual fund vehicle was announced in 2010 as part of the implementation of the fourth UCITS Directive (2009/65/EC), to facilitate the implementation of master-feeder structures based in the UK. Historically, authorised funds in the UK were unit trusts and more recently open-ended companies based, but UK contractual funds akin to the French FCP (fond commun de placement) were not available. The intention is to create a genuinely tax transparent authorised fund regime in the UK.


The UK’s tax regime for collective investment has been undergoing upheaval since 2006—do you think that process is now complete?


AL: A lot of work has been done to make the UK tax regime more attractive, but there is still much to do. There is an alphabet soup of special fund regimes (AUTs and OEICs, PAIFs, FAIFs, TEFs, UUTs, TTFs, reporting and non-reporting offshore funds, FINROFs etc) and the tax rules are not always entirely consistent across the regimes. The tax rules are also subject to change in response to EU and UK regulatory developments.


How successful has the overhaul been?


AL: Generally the UK tax regime has been more competitive, with more options and flexibility, and more certainty. In particular, the reporting offshore fund regime solves many of the difficulties with the old distributing fund regime, and the ‘white list’ of inv

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