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Positive action needed to boost competitiveness of UK funds industry, says KPMG

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Consolidating a number of recent tax proposals in this year’s Budget would boost the attractiveness of UK funds versus their offshore competitors, according to Rachel Hanger, investment

Consolidating a number of recent tax proposals in this year’s Budget would boost the attractiveness of UK funds versus their offshore competitors, according to Rachel Hanger, investment management tax partner at KPMG. 

Previous research by KPMG concluded that for every GBP1bn of funds under management in the UK, nearly GBP1m of tax revenue is generated. Should the funds choose to locate offshore, this revenue would be lost to UK Plc.
 
Hanger says two areas, in particular, require action. First, the Chancellor may wish to consider a statement that the measures in the recent trading versus investment consultation paper will be adopted. This would enable trading funds to be established in the UK for the first time. 

Currently, there is a risk that UK funds can be taxed on trading profits whereas no such risk exists for offshore funds. The proposals contained in the recent trading versus investment consultation paper would remove the risk for funds established in the UK. Bringing funds onshore will be a benefit for the UK in terms of jobs and revenue. 
 
Second, the fund-specific stamp duty reserve tax regime, which is peculiar to the UK, could be abolished as it makes it more difficult to market UK funds overseas and is administratively burdensome. Under this regime, UK funds that invest in UK equities are subject to an additional charge that offshore centres do not levy. This can act as a performance drag on the fund, making them less competitive than offshore funds.

Hanger says: ‘These two measures could go a long way towards making the UK an attractive fund domicile. This is at a time when managers, who have traditionally established funds in offshore centres, are starting to consider seriously onshore centres as the UK provides a regulated regime which can be attractive in a turbulent market.’

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