Speaking to the Investment Week news service recently, legal experts have warned that plans to attract non-retail hedge funds onshore to be regulated are likely to fail unless the Inland Revenue decides to grant the funds tax exemption on trading income for their portfolios.
According to Investment Week, the UK tax authority is set to rule on proposals for taxing 'onshore UK regulated quasi-hedge funds', laid out in FSA consultation paper 185, later this year.
Partner at Macfarlanes, Martin Cornick suggested that in his view, the Inland Revenue is likely to tax onshore funds in the same way as other regulated vehicles are taxed, namely by exempting them from paying tax on gains within the fund.
He concluded by observing that in view of the fact that many hedge funds are adopting a trading strategy: 'Unless the Inland Revenue is convinced to grant an exemption from tax on trading income, I do not think we will see hedge funds coming onshore in the UK.'
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