Consultation on asset holding companies in alternative fund structures

The measure

The government released a consultation document on the ongoing competitiveness and sustainability of the UK tax and regulatory regime for holding companies in the funds industry.

The government has recognised that, although the UK’s corporation tax system for holding company structures is generally attractive, there can be barriers to the use of holding companies established in the UK which do not exist in certain other jurisdictions.

The consultation therefore requests views on the reform of certain aspects of the UK corporation tax system to address challenges encountered by funds investing into credit, real estate and mainstream private equity assets. The consultation document identifies the following aspects of the UK’s taxation regime for consideration:

• the current limitations of the UK’s substantial shareholding exemption, particularly for real estate funds with a ‘mixed’ investor base;

• a potential expansion of eligibility for the UK REIT regime (for instance, potentially allowing non-listed REITs within a real estate fund context as a form of holding entity);

• the levying of withholding tax (WHT) on interest;

• the lack of the preservation of the underlying character of investment returns to UK investors from UK holding companies as income or capital;

• challenges for credit funds investing into the UK and the potential relaxation of the eligibility criteria for the UK’s tax regime for securitisation vehicles; and

• concerns with the current hybrid mismatch rules, where they give rise to an unintended and disproportionate effect on fund and fund management structures (also subject to an additional consultation).

Who will be affected?

The funds and asset management industry. 

When will the measure come into effect?

The consultation will run to 20 May 2020.