HM Treasury has published a response document to its Review of the UK Funds Regime: call for input consultation. The main objectives of the review were to identify options to help make the UK a more attractive location to set up, manage and administer funds, and to support a wider range of more efficient investments better suited to investors' needs. More insight into the Call for Input can be found in our earlier article 'HM Treasury's Review of the UK Funds Regime: A Call for Input'.

As part of the review, the Government has already introduced a new category of authorised open-ended fund structure, known as the 'Long Term Asset Fund' (LTAF). For details of the LTAF please see our article: FCA launches the Long Term Asset Funds to encourage investment in illiquid assets. The Government has also introduced a new tax regime for qualifying asset holding companies (QAHC regime).

Here, we set out the key proposals covered by the HM Treasury's response to help companies and investors understand the potential changes that could lie ahead.

The response

As part of the request for input, the responders were asked what the top three priorities should be for government implementation. Across the responses, the most commonly cited top three were the need to address gaps in the UK's current offering of fund structures and a review of the VAT treatment of fund managers, along with the introduction of the LTAF.

In response to the feedback, the Government has set out its intentions and proposals, which will involve the FCA where applicable. These include plans to:

  1. Make the taxation of funds simpler and more efficient. As part of this the Government will:
    • consult on options to simplify the VAT treatment of fund management fees;
    • carry out a review of the genuine diversity of ownership (GDO) condition. The GDO condition ensures that the fund is widely marketed and cannot be set up to give a limited number of investors a beneficial tax treatment; and
    • consider ways to improve tax efficiency in multi-asset funds.
  2. Expand the range of investment products available in the UK. This will include authorised fund structures that are permitted to distribute capital, and a new type of fund structure, known as an unauthorised contractual scheme, which is to be aimed at professional investors. In this respect:
    • an HM Treasury, HMRC and FCA working group will be established to progress work on permitting the distribution of capital by authorised funds; and
    • the Government will conduct further work to explore options to include unauthorised contractual schemes in the UK's fund offerings.
  3. Explore the opportunities to support the wider funds environment, by providing more information on the fund authorisation process and by promoting the UK funds regime abroad.
  4. Establish a new workstream focusing on further reforms to Real Estate Investment Trusts (REITs), which will also consider the interaction of REITS with the new QAHC regime.

If you have any questions or are interested in learning more, please contact Sharon Ayres, Lee Nuttall or your usual Gowling WLG contact.