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HM Treasury’s Review of the UK funds regime: a call for input

  • United Kingdom
  • Investment funds and asset management
  • Tax planning and consultancy
  • Financial services


On 26 January, HM Treasury (“HMT”) published their “Review of the UK funds regime: A call for input” seeking comments from market participants and other interested parties on a large number of suggestions HMT has received to improve the UK funds regime, covering both the regulation and taxation of investment funds.  The review was trailed in a Statement to the House on Financial Services given by the Chancellor of the Exchequer, Rishi Sunak in November 2020,

“To build on the 113,000 jobs already supported by investment management, we’ll shortly publish a consultation on reforming the UK’s regime for investment funds.”

The call for input builds on the work of the Asset Management Taskforce and responds to the recommendations made by the UK Fund Regime Working Group in its 2019 report.  It sets out the scope and objectives of the review and invites views on which of the proposed regulatory and taxation reforms should be taken forward and which should be HMT’s top three priorities. 

The intention is to identify options which will make the UK an attractive location to set up, manage and administer funds, and to better meet investors’ needs for a wider range of more efficient investments.  This includes reforms to the UK tax regime.  HMT is strongly of the opinion that managers of UK funds will have a greater opportunity to distribute funds globally if the attractiveness of the UK funds regime is enhanced.

Head of Financial Services Michaela Walker comments,

“It is encouraging to see the Treasury consulting with industry on their wide ranging review, which for the first time looks holistically at the UK regime and looks to address both the tax and regulatory aspects.  Some of the proposals, particularly around funds taxation and the new proposed fund types for alternative and longer terms assets (the Long Term Assets Fund and the tax-effective unauthorised structure) have the potential to change the landscape for the UK funds industry and allow the UK to compete with Luxembourg and Dublin more effectively.”

Partner Ronald Paterson added,

“The uptake of UK Investment Trust Companies across a range of assets, from securities to alternative assets, such as renewable energy, since the tax regime for these funds was amended in 2011, demonstrates the benefits of updating the UK regime and it is good that the Treasury is keen to understand what further steps could be taken to support the use of the Investment Trust structure.”

Responses are sought by 20 April 2021. 

Eversheds Sutherland will be responding to the call for input.  If you have views on the call for input which you would like HMT to take account of but for whatever reason would prefer not to make your own submission, we are happy to receive your comments and include them in our submission.

Headlines from the Call for Input

As we develop our response to the call for input, we intend to publish more considered client briefings on various aspects of the call for input.  For now, however, we draw your attention to the following headline points:

Taxation of Funds

The call for input is seeking information on improvements that could be made to the UK funds tax regime, including whether it would be possible to:

  • improve the recent tax reforms and initiatives
  • improve the position of authorised balanced/multi-asset funds
  • improve the tax regime of UK domiciled Real Estate Investment Trusts (“REITs”)
  • improve the VAT treatment of fund management services and
  • remove any tax barriers to the use of UK domiciled limited partnerships (“LPs”)

HMT is working separately on a review of asset holding company regulation.

Legal Director Camilla Spielman comments,

“It is exciting to see HMT engaging with so many of the funds tax issues currently concerning the industry and also considering new types of UK fund vehicles with appropriate tax regimes to fill in gaps in the UK’s existing range of fund types.”

Approach to Funds

The call for input asks how to:

  • enhance the current funds environment
  • improve the process and speed of fund authorisation
  • improve the qualified investor scheme (“QIS”) model, eg allowing a wider range or permitted investments, raising the borrowing cap, relaxing derivatives restrictions and improving sub-fund structures

Partner Julian Brown comments:

“We commend HMT for the ambitious scope of this call for input; in particular its efforts to improve the competitiveness of the UK fund regime and to reduce regulatory frictions.”  He added “The industry now has an opportunity to suggest tweaks to the recipe for qualified investor schemes (QIS) which could unlock new sources of investment.”

Principal Associate Katie Taylor comments:

“The move to push the QIS model within the limits of an authorised fund structure fits the recent trend of recognising the need to have a fund that can be more flexible for professional investors while maintaining the regulatory protection of an authorised fund. The points that have been picked up (including limits on borrowing and investment in other funds) are all current road blocks we have been exploring and will be a key part of our response to the call for input”.   

Opportunities for wider reform

The call for input asks how to:

  • attract exchange traded funds (“ETFs”) to set up in the UK
  • attract alternative investment funds (“AIFs”) targeting international markets to set up in the UK
  • encourage fund administration firms to locate their activities and create employment outside London and the South East
  • improve fund structures
  • enhance the use of investment trusts
  • best permit the distribution of capital
  • introduce new fund structures
  • provide a tax efficient structure for long term asset funds (“LTAFs”)
  • introduce a new unauthorised fund vehicles
    • professional investors
    • investing in alterative asset classes

Principal Associate Sarah Burnside comments,

“The call for input heralds the start of an exciting revamp of the UK funds regime and an opportunity for industry participants to come together and innovate in order to ensure the UK enhances its position as a competitive centre of business in the asset management sector.”

Principal Associate Phil Spyropoulos added,

“It is fantastic to see Treasury (and the FCA) responding to industry calls for a long term asset fund.  This could be a game changer for investors seeking infrastructure investments in an FCA-authorised product.”

What happens next

HMT will analyse the responses and consult further on specific proposals for reform.

HMT is committed to prioritising those reforms which will have the greatest impact and those which can be implemented swiftly.

How Eversheds Sutherland can help

If you have views on the call for input which you would like HMT to take account of but for whatever reason would prefer not to make your own submission, we are happy to receive your comments and include them in our submission. If you would like to discuss any aspect of the call for input for the UK funds regime review, please get in touch.