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UK Funds Regime – Government call for input

UK Funds Regime – Government call for input

HM Treasury has launched a consultation on tax and regulatory aspects of the UK funds regime, as flagged at Budget 2020.

Nathan Hall

Partner, Asset Management and Operational Taxes

KPMG in the UK


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HM Treasury has issued its long-awaited consultation on the UK funds regime, with a view to identifying options for making the UK a more attractive location for setting up, managing and administering funds, and which will support a wider range of more efficient investment vehicles better suited to the needs of investors. The review covers tax, regulatory and other aspects of the regime. Respondents are asked a number of questions, including to identify their top three priorities for reform. The review is of particular relevance to UK asset managers and fund administrators and distributors.

The UK’s approach to funds taxation

Any tax reforms will need to be compatible with the UK’s robust approach on tax avoidance and evasion, and with the UK’s international commitments while ensuring that the UK can exercise taxing rights over UK source income. The fundamental approach of the UK tax landscape for funds will continue to ensure that investor decisions are not distorted by tax considerations.

Questions asked of respondents include:

  • How effective have recent reforms to UK fund taxation been in achieving their aims (e.g. the introduction of Authorised Contractual Schemes; changes to the Investment Trust and Unauthorised Unit Trust regimes)?
  • How can it be ensured that the tax neutrality principle always holds for funds that hold a mixture of equity and debt investments and in particular, why has the uptake of Tax Elected Funds (TEFs) been limited? How could any operational or commercial barriers in relation to TEFs be addressed?
  • How can unnecessary barriers and complexities within the Real Estate Investment Trusts (REITs) regime be addressed?
  • What specific considerations in relation to the UK’s double taxation treaty network should the Government be taking into account?
  • What barriers are there to the use of UK-domiciled limited partnerships and how might tax changes help to address them? and
  • Consider the UK’s approach to VAT on fund management services (the Government is seeking initial views and may conduct a separate consultation on the options at a later stage).

Opportunities for wider reform

More generally, in terms of the UK’s attractiveness as a fund domicile, HM Treasury is seeking views on issues that cut across the tax and regulatory aspects of the UK funds regime, and on aspects of the wider environment relevant to the regime’s utility and appeal; for example:

  • Why do firms choose to locate their funds in other jurisdictions in cases where the UK funds regime has a comparable offering, e.g. Exchange Traded Funds?
  • Is there scope to facilitate investment in long term, illiquid assets and to meet the needs of alternative investment funds for professional investors?
  • The introduction of a new ‘Long-Term Asset Fund’ is considered and questions are asked as to the possible tax implications of this.
  • For UK Alternative Investment Funds targeting international investors, which markets would be most valuable?

Next steps

The deadline for responding to this consultation is 20 April 2021, but please reach out to Nathan Hall or Colin French, or your usual KPMG contact to discuss in the meantime. The Government will analyse responses to this call for input and then intends to consult on specific proposals for reform.

For further information please contact :

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