During June 2013 three sets of Regulations made by HM Treasury came into force in relation to the treatment of authorised contractual (tax transparent) funds for the purposes of tax on chargeable gains, stamp duty, SDLT and VAT.
The Regulations are the combination of a long consultation undertaken by HM Treasury. The need for the new structures first arose as a result of the UK implementing in July 2011 the Undertakings for Collective Investment in Transferrable Securities (UCITS IV) Directive (2009/65/EC). With the Implementation of UCITS IV, a framework was introduced to enable a system of master-feeder arrangements applicable to UCITS that collectively invest in other UCITS. Permitting this framework was designed to enable economies of scale through pooling of assets together with lower overall costs in the administration of the funds. For the new structure under UCITS IV to be attractive to cross-border investors, the master fund must be a tax transparent vehicle, thus enabling the investor to only be taxed in its home country. Until the implementation of the Regulations, the UK could not offer such a tax transparent fund.
The main highlights of the new tax transparent funds include:
Investors in co-ownership schemes will be treated, for chargeable gains purposes, as owning an interest in the co-ownership fund and not in each of the underlying assets;
Transfers of securities to a tax transfer fund in consideration for an issue of units in the fund and transfers of units in tax transparent funds are exempt from stamp duty and SDLT;
Supply of management services to tax transparent funds is now VAT exempt.
What does this mean? The creation of the new tax transparent funds is designed to enable the UK to compete with the rest of Europe in respect of tax transparent funds with a view to maintaining London’s pre-eminence as a financial centre.
Sources: Collective Investment Schemes (Tax Transparent Funds, Exchanges, Mergers and Schemes of Reconstruction) Regulations 2013 (SI 2013/1400); Stamp Duty and stamp Duty Reserve Tax (Collective Investment Schemes) (Exemptions) Regulations 2013 (SI 2013/1401); Value Added Tax (Finance) Order 2013 SI 2013/1402).