Upcoming A&M Taxand Webinar: Virtual Asset Manager Roundtable

A&M is hosting its third Virtual Asset Manager Breakfast Briefing webinar on 12 May 2021.The Virtual Asset Manager Roundtable will provide an overview of tax and commercial issues that Asset Managers may be facing in the current climate, with a guest presentation on environmental, social and corporate governance (“ESG”) provided by Sarmad Naim, Associate Director, and Alex Stickler, Commercial Manager, of IQ-EQ.

Presentation Topics to be covered at the next Virtual Asset Manager Roundtable include:

• Market update provided by Daniel Parry, Managing Director and Head of Funds Tax;
• Update on the Disguised Investment Management Fee rules provided by Daniel Parry;
• Overview of HM Revenue & Customs enquiries into the tax treatment of carried interest provided by Shirley Ly, Associate Director; and
• Guest presentation by IQ-EQ on ESG.

Please register here for login details to the event. We hope to see you there.

Key Highlights from UK Budget on 3 March 2021

Chancellor Rishi Sunak announced the UK Budget on Wednesday, 3 March 2021. As expected, it was heavily focused on providing support to businesses who have suffered through the COVID-19 pandemic and set out a path towards recovery for the UK economy.

There was nothing specifically directed towards asset managers in the Budget, with a much-feared increase to Capital Gains Tax or an introduction of a Wealth Tax failing to materialise this time around. There were no further announcements on these measures on our first annual  “Tax Day” on 23 March 2021 either, as some had suspected.

The key highlights from the UK Budget were as follows:

Corporation tax

• From April 2023, the main rate of corporation tax will rise to 25% for those companies with profits over and above £250,000.
• Companies with profits below £50,000 will continue to be taxed at 19%, and there will be a tapered rate up to the upper threshold of £250,000.
• Close investment holding companies will pay corporation tax at a higher rate of 25%.
• From 1 April 2021 to 31 March 2023, companies investing in qualifying capital expenditure will obtain a “super deduction” of 130% for capital allowance purposes (broadly for main pool assets such as plant and machinery). There will also be a 50% deduction for special rate pool assets such as long-life assets and integral features.
• There is also a temporary extension to the loss carryback period for companies which could give some flexibility in utilising Covid or post-Covid losses.

Personal tax

• There were no significant changes to tax rates for Income Tax or National Insurance Contributions (“NIC”).
• Following next year’s increase in personal allowance to £12,570, this threshold will be frozen until April 2026.
• Similarly, the Income Tax higher rate threshold will increase to £50,270 as planned and then be frozen until April 2026. NIC thresholds in 2021/22, as announced, will rise with inflation and then also remain frozen until 2026.
• For Scotland, Kate Forbes announced similar freezes in her January Budget, with Scottish Income Tax rates and bands remaining unchanged for 2021/22.
• The capital gains tax threshold will also be frozen at the present threshold of £12,300 until April 2026.

Read our full article on the UK Budget announcements.

Key Highlights from UK ‘Tax Day’ on 23 March 2021

The Chancellors Budget was followed by the UK’s first ever ‘Tax Day’ on 23 March 2021, which saw the Treasury publish many documents and consultations on future tax policies. Though such announcements have traditionally been made simultaneously as the Budget, they have been delayed this year to allow for greater scrutiny.

Notably, there was no further indication of significant changes from a Capital Gains and Inheritance Tax perspective or material announcements in the context of funds.

The key highlights were as follows:

• Taxation of trusts - The government have previously consulted stakeholders on the taxation of trusts. The responses to the consultation did not indicate a desire for comprehensive reform at this stage.
• Residential Property Developers - In the coming months, the government will consult the public and key stakeholders on introducing a tax aimed at the largest residential property developers. If implemented, the tax will be introduced in 2022, which will help pay for the costs of cladding remediation across the UK.
• Business Rates - The government is publishing an interim report, including a summary of responses received to the call for evidence for the fundamental review of business rates, due to conclude in the autumn.
• Promoters of Tax avoidance schemes - The government is publishing a consultation on a package of measures to clamp down on promoters of tax avoidance. Proposals include ensuring HMRC can protect their position by securing or freezing a promoter’s assets so that the penalties they are liable for are paid, tackling offshore promoters and the UK entities that support them, closing down companies that promote avoidance schemes and disqualifying their directors etc.

HMRC Enquiries into the Tax Treatment of Carried Interest

The rules on the tax treatment of carried interest are complex. The introduction of the Disguised Investment Management Fees (“DIMF”) and carried interest rules in 2015 marked a great change in the taxation of carried interest for investment management professionals working in the UK. In October 2020, HMRC published its long-awaited updated guidance on this matter, however much clarification is still needed to interpret the rules. We discussed the updated DIMF guidance in further detail in our February edition.

We are increasingly aware of the number of enquiries into the tax treatment of carried interests HMRC are raising at both house and individual level. These enquiries are typically aimed at several investment management professionals, and we expect this scrutiny to grow in light of the Budget (please see above).

Based on our experience, the key areas of HMRC focus include:

• The carried interest exemption.
• Employment-related securities.
• Valuation of carried interest.
• International issues.

Our full report on HMRC Enquiries into the Tax Treatment of Carried Interest.

Employee vs Partner: Tax Status Changes

There are a number of tax and legal differences to be aware of when your employment status changes from employee to partner. For tax purposes, as a partner within a partnership, you are seen as a self-employed individual in the eyes of HMRC. This can have a significant impact on how you are taxed and when you are taxed, alongside future potential cash flow implications.

Our full guide on the key considerations and differences of an employment status change from employee to partner.

If you have any questions about the content covered in this newsletter, please contact one of our tax experts.