UK Budget 2020 – Asset Holding Companies in Alternative Fund Structures

As part of the series of announcements made in the 2020 Budget, HM Treasury released a consultation document relating to the tax treatment of UK asset holding companies in the context of alternative fund structures. A link to the consultation document can be found here.

The government is pursuing a review of taxation and relevant areas of regulation applicable to the existing UK funds regime in order to ensure its ongoing competitiveness and sustainability.

As an opening step, there is to be both a review of the value-added tax (VAT) charges on investment management fees and also an exploration of the attractiveness of a new UK intermediate asset holding company (UK AH) vehicle through which alternative funds could hold assets. This might be achieved either through changes to existing UK tax rules applicable to companies or by the creation of a new bespoke tax regime for such UK AHs. The government is looking for evidence that changes would bring clear benefits by facilitating the flow of capital, income and gains between fund investors and their underlying investments via such UK AHs. Such changes would need to be consistent with international Organisation for Economic Co-operation and Development tax standards although there may be greater flexibility now the UK has left the EU (assuming measures take effect after the transitional period).

The focus of the review is on alternative funds, sometimes termed non-collective investment vehicles, or non-CIVs, and in this context generally closed-ended funds that raise capital from institutional investors like pension funds, insurance companies and sovereign wealth funds (although there can be a range of other investor categories). These funds commonly pool investor capital through a limited partnership (although not always) with the limited partners being the investors in the fund and the general partner being the investment manager/the entity responsible for delegating the investment management function. The pooled capital is then invested via asset holding companies in the underlying fund assets. The example structure shown in the consultation document is set out below.

Read 'UK Budget 2020 - Asset Holding Companies in Alternative Fund Structures'.