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Asset Management Sector: Summer Budget 2015

  • United Kingdom
  • Tax planning and consultancy - Briefings
  • Financial institutions


The Summer Budget on 8 July 2015 contained a surprisingly large number of measures that are directly or indirectly relevant to the UK asset management industry.

The Budget continues the government’s well regarded Investment Management Strategy, despite it not having been mentioned explicitly.

Property funds and SDLT

The government has confirmed that it will legislate in Finance Bill 2016 to introduce stamp duty land tax (SDLT) seeding relief for property authorised investment funds (PAIFs) and an SDLT regime for co-ownership authorised contractual schemes (ACS) and similar tax-transparent funds.  This follows extensive lobbying and should help the property fund sector considerably. (Red Book paragraph 2.154)

The government has not re-announced that it will be issuing a further consultation document but it will obviously issue draft legislation later in the year.  The funds industry will need to work closely with the government to ensure that it is workable, given the government’s concerns about avoidance.

The proposed SDLT changes are:


To remove entirely the SDLT charge on the transfer of an existing property portfolio to a newly established PAIF. As currently proposed, this is relatively narrow, working for 100% group structures, but not where some ownership of a ‘seeding’ portfolio is initially outside the group.  The existing exemption for converting authorised property unit trusts into PAIFs is to remain.

For ACSs

The basic proposal is to create a new SDLT regime for co-ownership ACSs, to remove the SDLT charge on the issue, cancellation or transfer of units in them, and to create a SDLT charge which will apply to the fund participants when property is transferred into one (even if there is no change of economic ownership). The fund manager will be responsible for collection of the tax by deduction from the fund in proportion to participants’ holdings.

The way the government intends to achieve this will result in a potential SDLT charge when participants transfer existing property portfolios into a newly established ACS, but there is also to be a seeding relief similar to that proposed for PAIFs (as described above).

There will be similar relief for equivalent offshore funds.

General note on the position in Scotland

Since 1 April 2015, Scottish land and business transaction tax (LBTT) and not SDLT has applied to the transfer of Scottish property. There is currently no relief for transfers of Scottish property from a unit trust to a PAIF, but the Scottish Government has already said that it will shortly consult on a relief similar to the existing relief for SDLT for English and Welsh property.   This is welcome and suggests that the Scottish Government is ready to listen to the concerns of industry in Scotland or investing in Scotland.

However, no announcement has yet been by the Scottish Government in respect of  the LBTT treatment of holdings in an ACS or whether they will widen the proposed SDLT seeding relief for PAIFs in a way similar to that proposed by the UK Government for SDLT.  Industry lobbying is likely to help here.

Also of interest to real estate funds 

The central government estate: The government has announced a commercially-driven approach to land and property in the central government estate which may give opportunities for the real estate fund sector.  (Red Book paragraph 2.18)

Residential property: The government has announced a restriction on mortgage interest tax relief for private landlords coming in over four years.  This may help residential property funds from 2017. Further details are available. (Red Book paragraph 2.59)

Bond funds – payment of gross interest

The government has announced a consultation on whether changes are required to the deduction arrangements for interest distributions on bond funds and other forms of savings income.  This follows industry lobbying after the March Budget when the government announced that (in conjunction with the introduction of a savings income allowance) automatic deduction of 20% income tax by banks and building societies would cease from 6 April 2016.  (Red Book paragraph 2.76)

Investment funds that are mainly invested in interest-bearing assets (often called 'bond funds') can pay out the interest they receive to investors as an 'interest distribution'. The fund then receives a tax deduction and the investor is fully taxable on the resulting distribution. Currently, UK individual investors usually have to receive the distributions net of UK basic rate tax, though many other types of investor, including ISA investors, can receive gross distributions.

Given that bank interest is now to be paid gross, it seems illogical that UK individual investors alone should have tax deducted from their interest distributions, especially as, after April 2016, many retail investors will be reclaiming the tax deducted.  There would also be considerable administrative savings generated by extending the gross payment to interest distributions, both for fund managers and also for the government.  This will be particularly important because of the new £1,000 savings income allowance.

Dividend taxation

The government has announced a major change to the way dividends will be taxed in the hands of investors from next year. The dividend tax credit will be abolished, but there will be a dividend tax allowance, so that the first £5,000 a year of dividend income will be tax-free.  For dividends over £5,000, the effective dividend tax rates will increased by 7.5% to 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers, and 38.1% for additional rate taxpayers. (Red Book paragraph 2.57)

The new Dividend Tax Allowance, combined with the Savings Income Allowance, will result in most retail investors not having to pay any tax on their income from investment funds (and other securities).  Interestingly, this will remove the benefits of ISAs for some investors (at least in respect of income).

The changes to dividend taxation have a downside for an individual investor in a balanced fund who has exceeded the £5,000 Dividend Tax Allowance, they will suffer an effective additional 7.5% tax rate on the taxable (non-dividend) income of the fund. It is not clear whether the legislation will provide a remedy, although one possible approach may lie in reducing the rate of corporation tax chargeable to authorised investment funds on their taxable income to 12.5%. This should give the right tax results for individuals, without affecting corporate investors.

Local government pension scheme pooling

The government announced that it would work with local government pension schemes to ensure the pooling of investments to significantly reduce costs and maintain investment performance. (Red Book paragraph 2.19)

The use of the tax-transparent ACS fund is an obvious solution here which will allow local government schemes to invest tax-efficiently. This is already increasing the take-up of the new ACS structure.

Peer-to-peer lending

The government has reannounced three changes relating to peer-to-peer lending platforms.  Whilst this has no direct relevance for funds, it could make peer-to-peer lending more attractive to investors as an alternative to bond funds. (Red Book paragraphs 2.74, 2.75 and 2.77)

Individual Savings Accounts (ISAs)

The government has confirmed its previous announcement regarding the eligibility of peer-to-peer lending as an ISA investment and the ability to make cash withdrawals and additions to current year ISAs without the replacement counting towards the annual ISA limit. (Red Book paragraphs 2.77 and 2.78)

The government is still planning to introduce a new “Help-to-Buy: ISA” (from 1 December 2015) which will offer a direct, if somewhat limited, incentive to first time buyers saving for a deposit by adding 25% to amounts deposited up to a maximum, direct subsidy of £3,000. (Red Book paragraph 1.231)

All these measures raise potentially difficult administrative issues for ISA managers.

Also of interest to the Asset Management Sector…

The government has made announcements concerning various international tax compliance measures and fund managers and investors will be concerned that OECD work to prevent the inappropriate granting of treaty benefits does not, inadvertently, reduce the access of widely held pooled investment schemes to treaty benefits.  

International tax reporting (global FATCA)

The government intends to legislate in the Finance Bill 2015 to require financial intermediaries (including tax advisers) to notify their customers about the gathering and international exchange of tax information under the Common Reporting Standard together with the penalties for evasion and the disclosure opportunities that have been provided. This will potentially require disclosure in prospectuses. (Red Book paragraph 2.168)

Corporation tax measures

The main rate of corporation tax will be reduced from its present 20% to 19% for financial year 2017 and to 18% for 2020. This will not, however, affect the 20% rate of corporation tax potentially payable by authorised investment funds, as their tax rate is based on the basic rate of income tax. (Red Book paragraph 2.117)

There are also some changes to the corporation tax loan relationships regime, but again nothing announced appears to affect the taxation of authorised investment funds and the streaming regime for their corporate investors, which is expected to remain unchanged.  (Red Book paragraph 2.123)

Limited partnerships

The government has announced that it will consult on technical changes to the limited partnership legislation to make the structure more user-friendly for private equity funds. (Red Book paragraph 2.184)

The proposals are likely to include some changes that have previously been discussed but not implemented, and also some of the modifications introduced for authorised limited partnerships, for example, the ability for limited partners to repay capital contributions without remaining potentially liable for the partnership’s debts.

It would be good if the proposals are enacted in the near future.

Investment managers of unauthorised funds

The government has announced that it is restricting the deductions available in calculating 'carried interest' from Budget day.

Separately, the government has also published a consultation document on what elements of performance returns are properly taxed as a capital gain, as opposed to income. (Red Book paragraph 2.179). See Eversheds’ e-briefing on Carried Interest: Summer Budget 2015.


The government is retaining a special regime for non-domiciled individuals, but intends to tighten up the rules in a number of respects to limit its benefits. In particular, from April 2017, anyone who has been UK-tax resident for 15 out of 20 tax years will be treated as UK domiciled for UK tax purposes, including for inheritance tax. There are also provisions bringing UK residential property into the inheritance net. (Red Book paragraphs 2.63, 2.90, 2.91)

The Red Book

The Summer Budget 2015 Red Book is available here. More Eversheds’ E-briefings on the Summer Budget 2015 are available here.

For more information contact

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