UK Tax Situation Remains Unattractive To Alternative Investment Funds

by Phillip Morton, Investors Offshore.com

28 September 2004

Despite the Financial Services Authority’s attempt to encourage UK onshore alternative investment funds with its new Qualified Investor Scheme (QIS) scheme, the Alternative Investment Management Association (AIMA) believes the industry in the UK is unlikely to succeed without changes to the tax regime.

“Without changes to the current UK tax regime, especially with uncertainty as to taxation treatment of ‘trading’ income, the establishment of such funds in the UK is unlikely to be attractive to AIMA’s members,” noted an Association response to the Inland Revenue’s discussion paper on the issues.

“Equally concerning is the suggestion in the Paper that QIS funds may incur an additional layer of taxation, as trusts or companies (rather than as funds),” warns AIMA, adding:

“Further, any change to non-taxation of capital profits arising from derivative transactions would be unwelcome to our members, who would also appreciate greater ability to use derivatives and short selling without incurring inappropriate tax rules.”

AIMA believes that the QIS scheme would be successful at attracting more onshore funds to the UK provided such funds are given similar tax treatment to offshore funds. Such a move would reverse the trend of both funds and providers moving offshore, it stated.

Founded in 1990, AIMA is a not-for-profit global trade association with over 700 corporate members in 43 countries focusing specifically on hedge funds, managed futures and managed currency funds.

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