Commentary

B7.505 Allocation of partnership income—Alternative investment fund managers

Business tax
Business tax | Commentary

B7.505 Allocation of partnership income—Alternative investment fund managers

Business tax | Commentary

B7.505 Allocation of partnership income—Alternative investment fund managers

A partnership is an alternative investment fund manager (AIFM) partnership if, broadly, its regular business is the management of one or more alternative investment funds (AIFs)1.

As part of an EU-wide strategy for investor protection, AIFM regulations and the Financial Conduct Authority's rules require AIFM partnerships to subject part of the remuneration of key individuals to performance conditions and to defer when they can access that remuneration.

The deferral rules require an AIFM partnerships to defer 40% to 60% of the variable remuneration of key staff by up to three to five years and pay at least 50% of it in units or shares of the funds they manage, or equivalent ownership interests, rather than cash. Consequently, this will mean that any partner of an AIFM partnership (P) has restricted access to profits but would be required to pay tax on these profits (often referred to as a 'dry tax charge').

To lessen the impact of this charge it is possible for P to2:

  1.  

    •     allocate all or part of his deferred variable remuneration to the AIFM partnership, so that the AIFM partnership pays the tax

  2.  

    •     only pay the tax

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