A regular briefing for the alternative asset management industry.
As the UK embarks on life outside the EU, the Government is actively talking to the business community about how it can use tax, legal and regulatory reform to stimulate economic activity and enhance Britain's position as a place to do business. As we discussed in our Brexit briefing paper last year, these discussions cut across many sectors, but some are of particular significance to alternative asset managers – perhaps none more so than an initiative to create a new tax privileged regime for asset holding companies. The idea is that the UK's regime would rival that of jurisdictions like Luxembourg and Ireland, enabling domestic and international funds to use UK-based companies to hold portfolio companies and other assets. It is an ambitious objective, and the initiative will only succeed if the Government commits to certainty and simplicity. There is clearly a danger – arising from an understandable need to mitigate abuse – of over-complicating the qualification criteria.
It is encouraging that the Government is actively seeking industry involvement as it develops its proposals, and appears to be determined that the new regime will be widely used. It is also helpful that the UK has a good starting point: an internationally respected legal system and corporate laws, and a range of tax reliefs for companies receiving dividends and capital gains. On the face of it, therefore, UK companies are already attractive as intermediate holding vehicles.
In reality, private funds – especially international funds – often choose an alternative holding company location, in part because the UK rules that determine whether a company qualifies for a particular relief can be complex, somewhat unpredictable at the outset, and often require costly structuring to optimise the position. Another issue for the UK in recent years has been the tendency, driven by changes to international tax rules, to try to locate as much substance as possible in one particular place: for example, if – perhaps because of Brexit – a fund manager is located in Luxembourg, it will often make sense to put the holding companies there as well.
the Government's view is that it would be more sensible to create a brand new regime for UK holding companies