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Digital Subscriptions > The Hedge Fund Journal > Issue 110 - December 2015 | January 2016 > Investment Manager Performance-Linked Rewards

Investment Manager Performance-Linked Rewards

Draft legislation published by UK government

The UK government has released draft legislation to implement the Summer 2015 Budget proposals to restrict the capital gains tax treatment of carried interest and other performance-linked rewards received by fund managers. Following on from the surprise consultation released in July 2015 as part of the Summer Budget, a consultation response document and draft legislation released on 9 December 2015 as part of the draft Finance Bill 2016 confirms that new rules will considerably widen the imposition of income tax on performance-linked rewards received by investment managers.

HMRC has been open in confirming the intention that any return received by an investment manager which is calculated by reference to the performance of the underlying investments over a given period, or the life, of the fund should as a starting point be taxed as income, however it is structured. It is no surprise, therefore, that the legislation in the draft Finance Bill clauses makes it clear that the exceptions to income tax treatment will apply very narrowly and only where a fund has a long-term investment profile, excluding a significant number of funds, even where they are currently “investing” rather than “trading” for tax purposes. Investment managers affected by the provisions, which will come into force from 6 April 2016, should carefully consider whether any changes to their structures are advisable as a result of these changes.

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