Hedge Fund Managers Leaving UK 'In Droves'

by Jason Gorringe, Tax-News.com, London

06 October 2010

Britain faces losing hundreds of millions in tax revenues as a result of an exodus of hedge fund managers moving offshore, mostly to Switzerland.

According to the recent findings of consultancy firm Kinetic, and analysis by the Financial Times, in excess of 1,000 hedge fund managers have fled the UK, costing UK coffers around GBP500m in lost taxes a year, based on conservative estimates, with the actual figure expected to be far greater.

It is anticipated that the exodus will continue due to forthcoming stringent regulation from the EU on hedge funds – under the proposed Alternative Investment Fund Managers Directive – the 50p income tax rate, and uncertainty about domestic tax and regulation policies.

The paper found that the departure of two industry leaders from the City in Alan Howard, founder of Europe’s largest hedge fund, Brevan Howard, and Mike Platt, of the third largest fund, BlueCrest Capital, has, and will continue to, cost the tax man a staggering GBP200m a year following their relocation to Switzerland.

According to the FT, the average London hedge fund manager earns in excess of GBP1.5m a year, although some structure their wages to avoid paying tax at the top rate (of 50%), which applies to income above GBP150,000. In comments to the paper, John Hanifan of Ernst and Young suggested that "the loss in terms of tax for the Treasury is potentially significant."

The Treasury has downgraded revenue forecasts for the top income tax rate, and now expects – following the exodus of many of the UK’s highest paid – that it will only generate a third of that previously anticipated.

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