The government has enacted new tax regulations for the LTAF, the UK's new authorised open-ended fund vehicle. It is designed to facilitate investment in long-term, illiquid assets and has been generating a lot of interest from our clients.
In October, the FCA published the new regulatory rules and guidance for the LTAF (which came into force on Monday 15th November 2021) but, up until now, we have not had any specific tax rules for the vehicle.
The new rules make it easier for LTAFs (in the form of open-ended investment companies (OEICs) or authorised unit trust schemes (AUTs)) to satisfy the "genuine diversity of ownership condition" (GDO). This is helpful for those LTAFs because meeting the GDO can allow them to fall into a safe harbour that ensures that most of their everyday dealings in shares and securities will not be treated as trading activities. What is less helpful is that it is clear from the regulations that the consequences for those LTAFs of failing the GDO is a wide-ranging loss of the usual tax benefits available to authorised funds that are OEICs or AUTs. For some investors and strategies, a transparent LTAF, rather than an OEIC or AUT, might be a better option and these tax rules would not then apply.
What the new rules don't (yet?) address is the concern that aspects of the existing tax rules for authorised funds may not be appropriate for the LTAF, particularly if a potential use for the LTAF is investing in a mix of assets e.g. a mix of debt and equity.
However, we understand from HMRC that they are still considering the feedback they have received relating to the tax position of the LTAF. Therefore, there may well be further changes to the usual authorised funds tax rules to support the take up of the new vehicle.
The new regulations, which come into force on 9 December 2021, can be found here.