Budget 2013: bond funds lined up for withholding tax boost

The government is considering removing the requirement to withhold tax on interest distributions on UK bond funds to non-UK investors as part of a wider move to make the UK asset management industry more competitive globally.

According to the Budget statement, the government is consulting on a proposal to remove the requirement to withhold tax on interest distributions on UK domiciled bond funds when sold via intermediaries and marketed only to non-UK investors.

The move could provide a boost to the UK fund management industry when promoting their bond fund ranges abroad.

At present, managers of UK bond funds are required to withhold basic rate tax on interest distributions. This works well in the case of UK residents but creates difficulty when funds are sold to foreign residents who are entitled to receive payments without tax being withheld.

'This puts managers wishing to export UK funds at a competitive disadvantage as it is administratively costly and difficult to separate out UK and non-UK investors.

'The government will develop and consult on proposals to allow such funds to pay interest on a gross basis where they are marketed to foreign investors in a manner that does not give rise to a risk of evasion,' the statement said.

The government also pledged to support the UK’s £4.9 trillion funds industry more broadly, pointing out that its share of fund domicile in Europe falling from 34% in 2000 to 20% in 2011.

The Treasury said the FSA is to hold a roundtable with fund managers with a view to exploring ways that it can speed up the process of authorising funds and ensure further information requests are less commonly needed after the initial application.

The government said it will also look to develop a co-ordinated infrastructure for marketing financial services that will bring together the Treasury, TheCityUK, Investment Management Association, Alternative Investment Management Association and other trade bodies.

Elsewhere, the Treasury said: ‘TheCityUK and key trade body the IMA will work closely with industry to lead a one-stop shop service for fund managers wishing to set up in the UK. They will bring together all relevant service providers to offer a comprehensive package to new fund managers.’