Articles By Topic
By Topic: United Kingdom
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From Vol. 6 No.11 (Mar. 14, 2013)
U.K. Tax Tribunal Overturns Hedge Fund Manager’s Attempt to Avoid Tax on Hedge Fund Profits through the Acquisition and Disposition of Film Distribution Rights
On February 13, 2013, a U.K. tax tribunal (Tribunal) overturned a tax avoidance scheme in which a prominent hedge fund manager attempted to create artificial losses through the acquisition and disposition of film distribution rights to shelter millions of pounds in personal income generated from his hedge fund. This case is the latest victory for Her Majesty’s Revenue and Customs in its recent vigorous enforcement against aggressive tax avoidance schemes by hedge fund managers. See “U.K. Hedge Fund Manager Taxed on Bonuses Delivered Through Tax-Avoidance Scheme,” The Hedge Fund Law Report, Vol. 5, No. 34 (Sep. 6, 2012). This article summarizes the Tribunal’s factual findings and legal analysis in this case.
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From Vol. 6 No.7 (Feb. 14, 2013)
U.K. Court Decision Helps Define the Amount of “Client Money” That Hedge Funds and Other Clients Are Entitled to Receive After a Brokerage Firm Fails
In the U.K., broker-dealers and other regulated firms must segregate “client money” from the firm’s own funds, and hold such money in trust, to ensure that such money is available for distribution to hedge funds and other clients if the regulated firm fails. The U.K.’s Financial Services Authority defines “client money” as “any money that a firm receives from or holds for, or on behalf of, a client in the course of, or in connection with its MiFID business.” When a brokerage firm enters insolvency in the U.K., clients are entitled to prompt distribution of their pro rata share of the client money held by the regulated firm, determined as of the date an administrator is appointed for the firm – an event that is deemed by applicable regulations to be a “primary pooling event” (PPE). However, until recently, it was not clear how administrators should value client positions that are open upon the occurrence of a PPE. The U.K. High Court of Justice recently issued a ruling that clarifies how open client positions are to be valued in determining client money entitlements. This article describes the U.K.’s “client money” regime to protect clients of regulated firms; summarizes the court’s decision and analysis in the ruling; and provides insight from partners at Sidley Austin LLP on the implications of the court’s decision for clients of regulated firms. See also “How Can Hedge Funds Get Their Money Out of Lehman Brothers International Europe?,” The Hedge Fund Law Report, Vol. 2, No. 31 (Aug. 5, 2009).
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From Vol. 2 No.50 (Dec. 17, 2009)
Implications of the New U.K. Offshore Funds (Tax) Regulations for U.K. and Global Hedge Fund Managers and Investors
On November 12, 2009, the new Offshore Funds (Tax) Regulations 2009 were enacted in the United Kingdom (U.K.). At a general level, the new U.K. tax regime may have a profound effect on the tax rate paid by U.K.-based investors in offshore hedge funds. Specifically, the new regime has the potential to narrow the circumstances in which U.K.-based investors in offshore hedge funds are required to pay tax on most returns at higher income tax rates, as opposed to lower capital gains tax rates. Next year, the highest marginal income tax rate in the U.K. may rise to 50 percent, while the capital gains rate for individuals is likely to remain at 18 percent. While the new regulations remain subject to final legal and technical checks, they will be effective for accounting periods beginning on or after December 1, 2009. For several years, the U.K. government has been working on replacing the “distributing funds” tax regime with a “reporting funds” regime; the new regulations embody a “reporting funds” regime. Although the general purpose of both regimes is the same – to prevent investors from rolling up income offshore and paying tax at a lower capital gains rate when the relevant investment is sold – the change in regime may affect the type of fund that may generate returns subject to capital gains treatment for U.K. investors. This article outlines the mechanics of the new regulations and examines their likely effect on U.K. and global hedge fund managers and investors. In particular, this article details: the definition of “offshore fund” under the new regulations; reporting versus distributing funds; the new rules with respect to investments by offshore funds in other offshore funds; transitional arrangements; cross investments; the white list of qualifying transactions that will be treated for tax purposes as investment activities as opposed to trading activities; and administrative and legal consequences of the new tax regime.
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From Vol. 2 No.35 (Sep. 2, 2009)
Will Increased Tax Rates and More Onerous Regulation Cause Hedge Fund Managers to Leave London?
London is one of the world’s premier centers of hedge fund management. A recent ranking of the world’s 11 most successful hedge fund managers listed two headquartered in London: Winton Capital Management and Brevan Howard Asset Management. But there has been, for months now, a good deal of talk about an exodus of hedge fund managers from the U.K. That talk has been fueled by two factors: recent tax law changes and the European Commission’s proposed Alternative Investment Fund Managers Directive (Draft Directive). We detail the tax law changes, and analyze whether they and the Draft Directive really have the potential to engender the much-discussed flight, or whether such flight constitutes an exaggerated threat.
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From Vol. 1 No.19 (Aug. 21, 2008)
UK Treasury Proposes Tax Exemptions to Support Competitiveness of its Asset Management Industry
With the goal of ensuring that the UK remains a competitive place for funds to locate and to enable investment funds to market themselves more competitively, the British Treasury recently proposed a new tax regime for the UK’s US$7.6 trillion asset management industry. Generally, the new proposal lifts several levies and reduces certain compliance obligations for investors. The proposal, which was laid out in three consultation papers, introduces two main changes: first, it puts forward an elective direct tax exemption for Authorized Investment Funds, and second, it replaces the substantial holding rule for Qualified Investor Schemes, which effectively removes an important tax barrier for these investment vehicles.
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