UK To Crack Down On Hedge Fund, PE Tax Avoidance

Dec 4 2014 | 12:11pm ET

The British government is cracking down on hedge funds and private equity funds disguising income to avoid paying income tax.

In the Autumn Statement on Wednesday, UK Chancellor George Osborne said the government intends to introduce legislation from April 6 that will ensure hedge and p.e. funds were charged income tax on their services.

The Treasury is aiming to raise $565 million from the measures, which will target investment managers who disguise fee income as capital gains to avoid paying income tax. Citywire reports an estimated 5,000 individuals and LLPs use fund structures to reduce their tax bills, something made possible by a lack of transparency surrounding fees.

“In response to the recent increase in schemes that abuse ‘miscellaneous’ loss relief by using artificial losses to avoid paying income tax, Autumn Statement  announces measures to prevent the exploitation of miscellaneous loss relief,” the Treasury announced in a statement.

The new law will affect “sums which arise to managers who have entered into arrangements involving partnerships or other transparent vehicles, but not sums linked to performance, often described as ‘carried interest’, nor returns which are exclusively from investments by partners," the Autumn Statement explained.

The Autumn Statement is one of two statements the Treasury makes each year to parliament upon publication of economic forecasts.

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