Our Financial Services Tax team has sector-specific knowledge and can help with tax issues and structuring considerations.
Over the past few years, the financial services sector has been subject to significant changes to the way it is taxed which can present challenges both in setting up a structure and ensuring existing structures are complying with the latest rules.
It is therefore increasing important that businesses seek tax specific guidance to ensure they are structured efficiently and comply with their obligations.
Who we can help
We offer expertise to support hedge fund and asset managers, private equity and venture capital, and investment funds.
Funds and asset managers
Private equity & venture capital
Investment funds
Choosing the optimal structure
It is important that the right structure is chosen from the outset to ensure it will be suitable for your objectives, both now and as the business grows. The wrong structure can create problems further down the line and cause unexpected tax issues.
By ensuring the right structure is in place from the start, it allows for tax efficient profit extraction and profit repatriation. If a fund is set up without considering the tax implications, it can be costly for the managers and difficult to rectify in the future.
Support in the event of a tax investigation
Fund managers have come under increased scrutiny from HMRC following the introduction of complex rules which target investment managers. It is therefore important when dealing with HMRC that your tax adviser knows the nature of the business and understands the issues affecting it.
Compliance with the Investment Manager Exemption
The Investment Manager Exemption is a long-standing statutory concession, and ensures that an investment manager will not be a UK representative of a non-resident person, provided conditions are met. It is important that fund managers understand these rules and how they will apply.
Transfer pricing advice and support
The financial services sector continues to experience rapid change. Changes in both the tax and business environment create challenges for transfer pricing as hedge fund and asset managers adapt to new models.
Our transfer pricing specialists understand both hedge fund and asset managers, and the international tax landscape. Access to our global network ensures we can provide complete coverage.
Structuring and tax advice for investment managers
It is important that you choose a structure at the beginning that is suitable for your long term objectives and future plans. The treatment of private equity’s income has become more complex over recent years and it is important you consider both your long term objectives, and treatment of the carried interest and co-investment.
By ensuring the right structure is in place from the start it can ensure tax efficient profit extraction and remuneration. If a fund is set up without considering the tax implications, it can be costly for the managers and difficult to rectify in the future.
Tax structuring on investments and remuneration planning for key executives
Our specialist tax team advises on investment structuring for private equity and venture capital groups, offering comprehensive advice on the best way to structure investments whilst minimising tax leakage for the fund and investors.
Incentivising management is often a key objective. We can provide advice on remuneration structing, including equity incentivisation.
VAT partial exemption and special methods advice
As the activities of a fund are considered exempt for tax purposes, the formation of a VAT group to prevent output VAT leakage is preferable. This does make the group partially exempt, although the standard partial exemption is unlikely to work for private equity. Our VAT team has specialist experience in agreeing the ’two pots’ value method with HMRC, which is typically used for private equity and venture capital groups.
The acquisition and disposal of portfolio companies.
When disposing of a company, it is important that all of the key stakeholders are advised of the impact on their tax position. The timing of disposal proceeds and its reinvestment can alter the tax treatment.
The offshore fund rules were introduced to prevent income being rolled up into an offshore fund and effectively converting income into a chargeable gain.
The rules operate to tax the disposal of an offshore fund as income. It is possible for a fund to register with HMRC as a ‘reporting fund’. The disposal of a reporting fund is a capital gain; however, the investor is required to report the undistributed income in the fund as taxable income throughout the life of the investment.
The offshore fund rules are very complex and can have significant tax consequences for investors. We provide advice to both the investor and the fund on the application of the offshore fund rules, the application for reporting fund status, and annual compliance for the reporting fund regime.
How we can help
Our services
UK compliance for companies, LLPs and LPs
Partnerships are generally treated as transparent for tax purposes, with each partner treated as receiving their share of the income and gains of the partnership.
Anti-avoidance rules can override the treatment, and it is therefore vital that these are considered in any partnership structure. As each partner is treated as carrying on their own notional trade through the partnership, it is important they understand their obligations.
Tax structuring for funds and managers
Investment managers often have a number of different sources of income, such as management fees, carried interest and co-investment, all of which are subject to complex UK tax rules.
It is important that fund managers correctly structure their business at the outset to ensure their returns are taxed correctly.
Disguised Investment Management Fees (DIMF) rules
The disguised investment rules were introduced to prevent fees being forfeited in exchange for increase to carried interest or co-investment results.
The scope of the legislation is very broad and affects all management fees and other payments from a fund structure.
Advice on Reporting Fund regime for Offshore Funds
The regime allows UK investors to treat realised gains in qualifying offshore funds as a capital disposal.
Funds wishing to join the regime have to make an application and comply with ongoing reporting requirements.
Treatment of Carried Interest and income-based carry rules
Carried Interest taxation has been subject to a number of changes over recent years.
Historically, Carried Interest returns were taxed as a capital gain. However, if certain conditions are now met the return is taxed as income.
Remuneration planning for managers and employees, including non-dom individuals
It is important that fund managers consider the tax treatment of each source of income and gains, as all of these are subject to the complex tax regime in the UK. This can be particularly important for foreign fund managers who are taxed on the remittance basis.
There are complex rules regarding the taxation of carry and income, and special rules which can allow Non-domiciled fund managers to exclude certain income from gains from the UK tax net.
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