The UK’s government has made no secret of it has big ambitions for the country after Brexit. While the government hasn’t laid out exactly what it plans from a practical perspective, the UK’s November Financial Services Statement and Boris Johnson’s Brexit declaration that, ‘The destiny of this great country now resides firmly in our hands…’ underlines that legislative changes are likely on the horizon.
Part of achieving post-Brexit ambitions is likely to be reviewing how the country can establish itself either as a jurisdiction of choice or the ways in which it can attract more business. One of the first of these potential evaluations is into Asset Holding Companies legislation, regulation, taxation and competitiveness as part of a broader review of the UK’s funds regime.
Government review of Asset Holding Companies
Last year, the government published an initial consultation document, asking for industry insights on the UK’s Asset Holding Companies (AHC). The consultation came after the 2020 Spring Budget.
After reviewing the initial consultation responses into AHC, the government noted a ‘strong case’ for a more competitive AHC structure. New AHC legislation would help position the UK to become more competitive with other leading jurisdictions as well as attracting more funds.
What might new Asset Holding Company legislation look like?
After the initial consultation, the government launched a second consultation document in mid-December 2020, which asks industry professionals to comment more precisely on what the features of a new UK AHC might look like.
The government have suggested that they would favour creating a new, simpler AHC regime, rather than trying to change the current legislation, in a bid to make a new vehicle more straightforward. Given the current AHC can be complicated from several perspectives (particularly in comparison with other legislation in popular jurisdictions), it’s expected that industry commentators may well agree this is a logical plan.
Traditionally, fund managers have sometimes found Ireland, Luxembourg or the Channel Islands more attractive jurisdictions to domicile their fund than in the UK. While having operations centralised in one place can play a part in this, it’s believed that the UK’s tax legislation also influences fund managers choosing to set up an Asset Holding Company outside the UK. This is because it can be complicated to understand if and when a company qualifies for tax relief in the UK, despite the otherwise attractive corporate taxation regime.
Understanding and optimising an AHC structure can potentially be more expensive in the UK than in other jurisdictions, which means that the UK may miss out on new funds business.
‘We understand that the government wants to tackle some of these issues head-on and create a simplified and competitive structure, which would be welcomed by many fund managers and industry players. International fund managers often have a UK base. Introducing a more competitive AHC could be very beneficial for fund managers interested in using a UK-based vehicle, especially in the context of BEPS and having sufficient substance in the UK,’ says Wim Ritz, ZEDRA’s Global Head of Funds.
The second consultation and the future of Asset Holding Companies
The second consultation document is open until February 23rd. While the features of the new AHC are suggestions, for the most part, they offer an attractive alternative to today’s AHC. However, some points would need particular attention to ensure that a new AHC regime is as workable and straightforward as possible for fund managers, although none of these concerns is too difficult to overcome from a legislative perspective.
‘Overall, we are looking forward to seeing what the UK’s new AHC will look like. We see the government’s undertaking as a very promising and interesting move that we think will make the UK a considerably more competitive location for asset managers,’ adds Wim.