The UK: Asset Holding Companies – Come on in, the water’s fine
The UK is rightly proud of its financial sector and an important part of that sector are the asset managers who help to look after the money you have saved.
However, although the UK can provide the managers in persona it doesn’t usually provide the entities that actually hold your investments – that is the “asset holding companies”. This is because although the entities do little other than hold the investments, the UK tax system can levy an uneconomic amount of taxation, especially when the investor is a Pension Fund that wouldn’t otherwise pay any tax.
This means that the asset holding companies are more often than not located outside the UK, and sometimes in jurisdictions that are our competitors for the more valuable asset management industry. The Treasury has, therefore, recently published a second stage consultation looking at how the UK can tempt these entities into the UK. That some of them are currently in Luxembourg and Dublin is just a bonus (to some).
The Treasury is looking to design a special regime for asset management companies that will encourage them to be based here. The regime will look to eliminate withholding tax on interest and take the entities outside of UK capital gains, for example.
The idea is apparently to go for the holy grail of regimes, one that is simple to understand and operate. This is, of course, possible but with simplicity comes the potential for cliff edges and ”losers”, something no politician likes. Also, there will be anti-avoidance rules, and given these are usually now principle based targeted rules, the protection that HMRC would want will almost certainly lead to uncertainty for business, a killer for a proposal such as this. Remember the Patent Box rules?
We will, therefore, have to wait and see if the rules for the simple regime end up being longer than War & Peace.
The consultation runs until 23 February 2021 with what looks like an intended start date of 1 April 2022. We expect draft legislation during the course of 2021 for inclusion in a finance bill and will, of course, keep you posted on developments.