Budget 2020: Holdings companies and alternative funds overview

The Government has today issued a consultation document on asset holding companies in alternative fund structures and invited comments from interested parties by 20 May 2020. It is prepared to make changes to existing tax laws that bring clear benefits to the UK, subject to its commitment to the OECD’s BEPS standards, in the following areas:

  • the substantial shareholding exemption;
  • interest withholding tax; and
  • the hybrid mismatch rules. 

It will be interesting to see how far the Government will go to change the existing rules to ensure the UK continues to be the market leader in the alternatives sector post Brexit.

It is encouraging to see that the Government is listening to the concerns of the UK asset management sector, which has gradually been shifting its business and resources to more user-friendly jurisdictions, such as Ireland and Luxembourg, to remain competitive. 

These jurisdictions have become very attractive for investment managers, allowing them to establish alternative funds in the same jurisdiction as the underlying holding companies for commercial, legal, and tax reasons. In particular, the tax rules relating to the availability of participation exemption (in the UK, substantial shareholding exemption) are less cumbersome and restrictive in permitting a holding company to claim an exemption from tax on capital gains arising from disposal of shares in qualifying companies. 

Positive changes in these areas should have a significant impact on the fund management sector, resulting in the possibility that alternative funds and their holding company platforms can be established and operated from the UK.

For more information please contact

Irfan Butt Irfan Butt

Partner

Adrian Benosiglio Adrian Benosiglio

Partner, Real Estate Tax