With effect from 8th July, 2015, UK resident investment management executives will pay capital gains tax on all their carried interest returns from investment funds (with the rate currently set at 28% for higher and additional rate taxpayers). The overall rate may in many cases be higher, since items of income such as interest and dividends remain liable to income tax. In addition, those who are not domiciled in the UK (“non-doms”) will no longer be able to benefit from the remittance basis of taxation in relation to their carried interest returns to the extent that they perform the relevant investment management services inside the UK. Further details are set out in our client memorandum of 16th July, 2015 (UK Summer Budget 2015).
Since the release of the new rules in the July Finance Bill, HM Revenue & Customs have published guidance on how the new rules will be operated. This is somewhat helpful, and indicates that the test for how much of a person’s carried interest returns will be attributed to UK services will be more of a holistic test looking at all the facts and circumstances, rather than looking strictly at the number of days spent in each territory. That said, the example in the guidance looks at a very clear-cut case, and all non-dom UK resident investment management professionals should consider how they may be affected by these new provisions.