Investment Managers Call For Abolition Of UK Stamp Duty Reserve Tax

by Robert Lee, Tax-News.com, London

08 February 2008

The UK Investment Management Association (IMA) has called for the abolition of the Schedule 19 Stamp Duty Reserve Tax (SDRT) regime, as part of a package of reforms to stem the flow of funds to offshore domiciles.

A report by IMA and business advisors KPMG puts the tax loss to the Treasury at GBP720,000 for every GBP1 billion of funds domiciled offshore, instead of in the UK. It revealed that UK firms are sponsors of funds totalling approximately GBP400 billion in Ireland and Luxembourg, but suggested that if these funds were domiciled in the UK, the Government would be receiving nearly GBP300 million in additional tax revenue per annum from the industry.

UK funds have to pay Schedule 19 SDRT, which is in addition to the SDRT charged on purchases of UK shares by funds. It is therefore an additional cost to investors, and makes UK funds less marketable than their European counterparts.

The IMA and KPMG calculated that its abolition would reduce the annual tax-take from investors to the Treasury by GBP70 million. However, they argued that the cost of abolition would be offset by the increased business and employment tax from the industry if funds were not domiciled offshore. The two further measures which would also encourage firms to domicile funds in the UK are legislative certainty that authorised funds are investing not trading, and a tax-exempt regime for funds, they added.

Richard Saunders, Chief Executive of the IMA, commented on the release of the association's budget submission to the government that:

"The UK lags behind Europe in terms of the growth in funds under management. Luxembourg and Ireland in particular have grown rapidly because of their more certain and favourable fund tax regimes. It is therefore crucial for the UK to be able to compete effectively with such centres in order to stem the flow of funds offshore, which results in a loss of business activity and consequent loss of tax to the Exchequer."

"The short term cost of abolition of the Schedule 19 SDRT regime is a small price for the Treasury to pay in exchange for increased future revenue from firms choosing to domicile their funds in the UK."

The IMA has also emphasised the need for the government to resolve other key issues affecting the funds industry, including specific amendments to the Authorised Investment Funds (AIF) Tax Regulations, the tax treatment on the use of swaps in pension funds, and reform of the Offshore Funds Regime.

Recommended