Budget 2013: funds industry finally gets its Schedule 19 wish

The government is seeking to make the UK funds industry more competitive in relation to its offshore counterparts through a raft of measures, not least by abolishing stamp duty on the sale of units in funds.

The abolition of principal stamp duty reserve tax on surrenders of units in funds, known as Schedule 19, will be set out in the Finance Bill 2014 and take effect in the 2014-15 tax year.

It is a move which has been welcomed by the Investment Management Association (IMA), which has lobbied for some time on the issue, and fits with a government drive to make the UK funds industry more competitive in relation to its offshore counterparts.

The Budget document stated: 'The regime is regarded as complex and burdensome, requiring frequent tax calculations and returns to be sent to HMRC. Additionally, because of the way in which the tax operates its headline rate implies a much greater tax burden than the annual cost actually suffered.

'This is difficult to explain to investors and gives rise to presentational complications when trying to market UK funds, especially overseas.'

It added: 'since the charge is only applied to UK funds, those who do not wish to pay Schedule 19 already have the option of investing in funds domiciled offshore. It is for these reasons that Schedule 19 is identified as a major deterrent to domiciling funds in the UK, with a particularly damaging effect on the ability of UK funds to attract non-UK investors.'

Daniel Godfrey, incoming chief of the IMA, said the measures would hopefully put the UK on a more even footing with other domiciles, like Luxembourg and Dublin, and shows that the government has 'skin in the game' in terms of its determination to achieve this.

'The UK has been a great location for asset managers but it has not been a great domicile for funds. Luxembourg has around €2 trillion in assets, Dublin has over €1 trillion, but we only have around £800 billion. We are behind Luxembourg and Dublin, despite the fact that a lot of the asset management takes place here. That is why I see this as a great opportunity. It is not only a world class opportunity for portfolio management, but we have also got the capability to provide support services for domicile. All we need is a competitive tax and regulatory regime and the government is showing they can give this to us.'

Deloitte investment management tax partner Eliza Dungworth agreed, adding: 'This measure is very welcome. It follows more than a decade of working with government to abolish this anti-competitive tax that costs industry so much to administer, but raises so little for the exchequer.'

Godfrey points to the IMA's estimates that for every £1 billion in funds that is domiciled in the UK, it generates £900,000 in tax revenues, suggesting the potential benefits for the economy. He also welcomes the Treasury's call for co-ordination to promote the funds industry between it, UKTI, TheCityUK and trade bodies like IMA and the Alternative Investment Management Association (AIMA), aided by the new Financial Services Trade and Investment Board (FSTIB) and TheCityUK, which will play a new expanded role to develop the marketing plan in consultation with government and industry.