For immediate release: Tuesday 24 October 2006

IMA SUBMITS REPRESENTATIONS TO CHANCELLOR AHEAD OF PRE-BUDGET REPORT 2006

IMA's submission to the Chancellor of the Exchequer ahead of this year's pre-Budget report focuses on the taxation and competitiveness of UK investment funds.

An IMA/KPMG report into the UK's position in the European funds industry concluded that the growth of other jurisdictions as fund domicile centres, particularly Dublin and Luxembourg, at the expense of the UK, is largely due to aspects of the UK tax regime for funds.  Specifically, these are the relative complexity and increased compliance burden of the UK system, along with a lack of a collaborative approach in the UK when compared to other regimes.

IMA's representations call on the Chancellor to address aspects of the current tax system which impose unnecessary costs on businesses. In particular, the Association has requested that a specific tax regime is developed for UK property funds, in order to allow non-taxpaying UK investors to invest in such vehicles without tax penalties. The representations also call for the abolition of the funds-specific Stamp Duty Reserve Tax (SDRT) regime which adds considerable complexity and operational costs with minimal tax yield for the Exchequer.

In order to ensure that investors are not being unfairly and additionally taxed inside a fund, the Association has requested that HMRC provide certainty that funds will be taxed as investing in assets and not trading, as the latter gives rise to additional corporation tax.  Moreover, it is questioned whether the fact that UK funds are liable to tax (even though relatively little is taken from them) is sustainable going forward, given high operational costs and an unfavourable perception by non-UK investors.

The IMA also calls for:

• Continued support for the Individual Savings Account, specifically urging the removal of the current end date for the ISA regime;
• Simplification of the Offshore Funds Regime (OFSR) to bring it into line with EU law. The Association welcomes last week's announcement by the Economic Secretary of the Government's intentions to consult with the industry to ensure tax rules in the OFSR do not act as a barrier to commercial development of multi-tiered funds;
• Technical amendment to the 2004 Finance Act to remove the inappropriately limited list of the entities which can establish a pension scheme. A simple provision is required to allow any person with the appropriate permission under the Financial Services and Markets Act to establish a pension scheme.

Julie Patterson, Director of Regulation, Operation and Taxation at the IMA, commented:

"The joint report with KPMG has highlighted that the current tax regime is reducing the attractiveness of the UK as an important fund centre. We have a set of proposals which will maximise the level of economic activity within the industry without the need for tax breaks or privileges. We would therefore welcome the opportunity to open a constructive dialogue with Ministers in order to address these issues going forward."
 

A copy of IMA's representations is attached.

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