U.K. Budget holds no new shocks for industry

Date: Thursday, March 25, 2010
Author: Hedge Fund Manager

Funds of funds and onshore start-ups look set to benefit from a series of smaller-scale initiatives in the UK government’s pre-election budget today, as the hedge fund industry avoided any further unwelcome surprises following 2009’s tax hikes.

“There is no more bad news – you’ve still got the 50% tax rate and an increase in national contributions – but in the small print there are some interesting items,” said Paul Hale, corporate tax partner with business-focused legal consultancy Simmons & Simmons. 

According to Hale, the main items of interest for UK hedge funds regard a number of ongoing projects. There is to be a consultation on extending the Funds Investing in Non-Reporting Offshore Funds (FINROF) – the UK tax term for Fund of Alternative Investment Funds (FAIF) – regime to mixed-FAIFs; funds that want to invest both in reporting and non-reporting funds.

The Chancellor also announced modifications to the way that Stamp Duty Reserve Tax (SDRT) applies to UK authorised funds, making it easier for those funds to invest in offshore collective investment schemes – “all potentially useful in the context of setting up onshore UK hedge funds,” Hale said.

Elsewhere, the UK gift aid scheme is to be extended so that it includes certain equivalent charitable bodies in Europe. “Given the charitable emphasis and multi-national nature of the hedge fund industry, that may attract the attention of some philanthropists,” added Hale.

On a minor note of disappointment, Hale said that various comments on tax, such as scrutinising the use of offshore trusts in order to reward employees, might be a “nuisance”.