A regular briefing for the alternative asset management industry.
The British government's ambitions to use its new freedom to diverge from EU laws to give the UK a competitive edge have, inevitably, been delayed by the more urgent need to focus on COVID recovery. Although the government is in the middle of a wide-ranging tax and legal review of the UK funds regime, many of the proposals are still at the discussion stage. As a result, the 2021 budget, and this week's widely anticipated "Tax Day" – a moment for the government to launch consultations on a wide range of reform proposals – were much less dramatic than they might have been for the private funds community.
This relative lack of concrete announcements should not obscure the important discussions that are going on. Indeed, as our online checklist shows, there are many proposals being contemplated in the UK, as well as important EU reforms that will affect all European managers. But while many of the EU changes are imminent, a number of UK ones – some of which could be really important in the years to come – are still in the development phase.
The UK budget was not without its news for private funds. The continued economic support for businesses suffering the economic impacts of the pandemic, and the longer-term measures aiming to stimulate business investment, will be helpful for many UK portfolio companies, whereas the tax measures were more of a mixed bag. Asset managers will need time to digest the combined impact of the general corporation tax measures – including the increase in rate to 25% from 2023 – the temporary extension of the trading loss carry back rules, and a 130% super-deduction for qualifying capital allowances. A more clearly positive step came in relation to the measures to improve the so-called "anti-hybrids" rules, which seek to address under-taxation caused by structural mismatches – such as in the way a payment is treated (equity vs. debt, for example) or in the different ways that jurisdictions might treat entities (tax transparent vs. opaque). The proposed changes look set to go ahead, and they should ease (if not completely solve) several of the issues that have troubled the industry since the regime was introduced in 2017.
Even less exciting for the asset management industry was the first, and over-hyped, "Tax Day". Its focus was on general tax administration and compliance, rather than to launch consultations on substantive tax changes – although debt funds may be interested in proposed reforms to the securitisation company regime (and, in particular, the "retained securitisations" proposals).
From an asset management perspective, the lack of industry-specific tax measures makes sense, given the ongoing Funds Review. Although still seeking industry input on most of its ideas, the direction of travel is promising. The focus is on identifying options which will make the UK a more attractive location to set up, manage and administer funds, and which will support a wider range of more efficient investments better suited to investors’ needs.
...Although still seeking industry input on most of its ideas, the direction of travel is promising. The focus is on identifying options which will make the UK a more attractive location to set up, manage and administer funds, and which will support a wider range of more efficient investments better suited to investors’ needs...