Investment funds risk losing tax exempt status

ASSET MANAGERS could fall foul of tax laws if they attempt to take advantage of European Union legislation.

The EU Ucits IV legislation allows groups to set up “master funds” in one jusidiction, which can be fed by “feeder funds” in other EU countries. However, accountancy firm Mazars has warned that UK tax laws would mean that investment funds that take advantage of these regulations would lose their tax exempt status, the Financial Times reported.

Currently, asset managers can trade in certain areas, such as equities and carbon emissions, without losing their status as non-trading, meaning the tax on their growth only falls on investors. However, to qualify for non-trading status, the fund must satisfy a “diversity of ownership” condition, and not be restricted to a specific group of investors.

Carine Beidas, senior manager, financial services tax at Mazars, told the FT that the master funds would only be open to the feeder funds, and would therefore fail to satisfy the condition.

“The UK tax regime still has some way to go for a Ucits IV friendly regime,” said Beidas.


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