The Summer Budget – Impact on the Asset Manager

On 8 July 2015, the Chancellor George Osborne, presented the Summer Budget (the “Budget”). The Budget needs to be taken into consideration as it impacts both the tax benefits of all UK citizens and non-domiciled individuals. It will have direct and indirect implications upon the UK asset management industry. The Budget further develops the government Investment Management Strategy, which focuses on three main areas: taxation, regulation and marketing.

Below we have provided summaries of some of the key changes introduced in the Budget:

Property funds and SDLT

  • Introduction of stamp duty land tax (SDLT) which will offer relief to property authorised investment funds (PAIFS).
  • An SDLT regime for co-ownership authorised contractual schemes (ACS).
  • SDLT will also be offered to similar tax-transparent funds.
  • The current SDLT charge on the transfer of an existing property portfolio to an established PAIF is sought to be removed.
  • Create a new SDLT regime for co-ownership ACS, removing the charge on the issue, cancellation or transfer of units in them.
  • Create a single charge to apply to the fund participants when property is transferred (responsibility for collection of the tax will be on fund managers).

Real estate funds

  • The government aims to bring about a commercially-driven approach to land and property in the central government estate.
  • Residential property: The government aims to restrict mortgage interest tax relief for private landlords coming in over four years.

Bond funds – payment of gross interest

  • The deduction arrangements for interest distribution on bond funds and other forms of saving income will be reviewed.
  • Gross payments to interest distribution will be extended, therefore leading to substantial administrative savings, both for fund managers and for the government.

Dividend taxation

The dividends tax cut will be abolished.

  • The government will introduce a new dividend tax allowance, whereby the first £5,000 a year of dividend income will be tax-free.
  • The rate will be at 7.5% for basic rate taxpayers.
  • The rate will be at 32.5% for higher rate taxpayers.
  • The rate will at 38.1% for additional rate taxpayers.

These changes could be seen as detrimental for individual investors whose funds exceeds the £5,000 Dividend Tax Allowance threshold as they will be made to pay an additional 7.5% tax rate on the taxable (non-dividend) income of the fund. The legislation is unclear as to whether a remedy will be included. One possible way the government could do this is by reducing the rate of corporation tax chargeable to authorised investment funds on their taxable income to 12.5%. This aims to give appropriate tax results for individuals, without affecting corporate investors.

Local government pension scheme pool

The government will be working with local government pension schemes to ensure the pooling of investment with the aim of reducing costs and maintaining investment performance.

Peer-to-peer lending

The government aims to bring about three changes relating to peer-to-peer lending platforms. It is noted that although this does not directly affect the fund itself, investors seeking alternatives to bond funds could be attracted by peer-to-peer lending.

Individual savings account (ISAs)

The government will further address the eligibility of peer-to-peer lending as an ISA investment, the ability to make cash withdrawals and additions to current year ISAs without the replacement counting towards the annual ISA limit.

Similarly, it aims to introduce the “Help-to-Buy: ISA” scheme from 1 December 2015. The government will contribute 25% to deposits up to a maximum of £3,000. These measures could raise difficult administrative issues for ISA managers.

International tax reporting (global FATCA)

A requirement for financial intermediaries (including tax advisers) has been proposed in the Finance Bill 2015, to notify their customers about the gathering and international exchange of tax information under the Common Reporting Standard. In addition, financial intermediaries must notify customers about penalties for evasion and the disclosure opportunities.

Corporation tax measures

Corporation tax will be reduced from 20% to 19% for the financial year 2017 and to 18% for 2020. However, investment funds may still have to pay 20% as their tax rate is based on the basic rate of income tax.

Limited partnerships

These are proposed changes to limited partnership legislation which aim to make the structure more user-friendly for private equity funds (See the C&Co article on changes coming to LP legislation).

Investment managers of unauthorised funds

  • A restriction on deductions available in calculating ‘carried interest’ from Budget day.
  • A consultation document has been proposed to examine whether the elements of performance returns are properly taxed as a capital gain, as opposed to income.


  • Under the proposed legislation the government will retain the special regime for non-domiciled individuals whilst also clarifying the rules to limit the benefits.
  • Rules will also be included for the purposes of inheritance tax.

Should you require any further advice or information on the above, Cleveland & Co, your external in-house counsel, are here to help.


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