2020 Budget: Funds

2020 Budget: Funds

Consultation on UK Tax Treatment of Funds Sector

The UK Government has launched a consultation on the UK tax treatment of the Funds sector (in particular asset holding companies) with a view to establishing whether changes to the tax treatment of companies used by funds to hold assets could make the UK a more attractive location. The consultation covers a number of issues including:

  • Expanding the Substantial Shareholding Exemption to benefit Real Estate Funds (including broadening the definition of certain qualifying investors)
  • The treatment of returns upon repatriation to investors (i.e. capital or income)
  • The impact of the hybrid mismatch provisions and in particular the treatment of exempt investors and the imposition of obligations that are difficult to meet due to lack of information
  • Whether the UK’s corporate interest withholding regime impacts decision making for Funds


Following recent changes to the Substantial Shareholding Exemption and given the importance of the UK’s Funds sector, the potential for further reform is welcomed. Addressing market barriers could help to further support the recent trend of the Funds sector locating their asset holding companies in the UK, which has historically been a location of key employees.

VAT on Fund Management

The Government has announced that it will be introducing legislation to clarify when the exemption for fund management can apply. This measure will expand where the fund management exemption can apply to the management of investment funds. These measures will provide for the exemption to certain pension funds and closed-ended listed funds.


While the clarification of the exemption is generally welcomed, fund managers will need to consider the new legislation carefully, and determine the impact it may have on their ability to recover VAT.

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Key Contact

Euan Sutherland

Senior Managing Director, Head of EMEA Tax Advisory