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Autumn Statement 2014: impact on the funds industry

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Summary: An overview of the key announcements from the Autumn Statement 2014 for the funds industry

Seeding relief (PAIFs and COACs)

The government has confirmed that it will (as expected) go ahead and introduce a seeding relief for property authorised investment funds (“PAIFs”) and co-ownership contractual schemes (“COACs”) in 2016. Whilst welcome, the relief will only be enacted in 2016. This delay in implementation will be a disappointment to those life insurance companies and pension funds who would like to modernise their holdings in a new collective vehicle.

Investment Fund Managers

From 6 April 2015 income tax is to be charged on sums arising where managers enter into arrangements involving partnerships and other tax transparent vehicles. Apparently this will not affect “carry interest” linked to performance, or returns from investments by partners - but no details are yet available.

Residential Property

Hard on the heels of the government’s announcement that it will press ahead with a CGT charge on non-residents holding UK residential property, the government has today said that it will increase the ATED (Annual Tax on Enveloped Dwellings) charge payable on enveloped dwellings by 50% above inflation for residential properties worth more than £2 million for the period of 1 April 2015-31 March 2016.

The good news is that while collective investment schemes can be subject to ATED, the new CGT charge on non-residents should not generally apply to widely held funds and other investment vehicles.

Hybrids

The government has launched a consultation on the implementation of the OECD's rules for addressing hybrid mismatch arrangements. This will have an impact on instruments such as CPECs (convertible preferred equity certificates) which are typically used by funds to extract sums from Luxembourg and other holding companies in a tax efficient manner. Funds will want to monitor the progress of this consultation closely.

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