Fund managers will be liable for around £40 million tax a year after the Markets in Financial Instruments Directive II (Mifid II) comes into effect in January 2018.
According to documents released alongside the Budget by the Office for Budget Responsibility (OBR) investment research will be taxable once the European regulation is implemented.
At the moment as a financial service, the bundled research provided by broker dealers to asset managers is exempt from VAT.
However, once the unbundling takes place, research will be subject to VAT and is expected to raise £40 million a year.
The OBR noted: 'At the moment, this research is bundled with the buying and selling of financial instruments that broker dealers carry out for asset managers’ funds. As a financial service, this is exempt from VAT. This measure, which takes effect from January 2018, makes the charge for this research subject to the standard rate of VAT.'
Last month, it was revealed that Her Majesty's Revenue and Customs (HMRC) was consulting on the tax implications of Mifid II on investment research.
As the deadline looms, asset managers have been announcing how they plan to pay for research, with some even revealing how much they expect it to cost.
Man Group announced that its decision to absorb costs would have a $10-$15 million (£7.5 million-£11.3 million) impact on pre-tax profit. Meanwhile Liontrust recently said that the cost of external research for the company would be between £1 million and £1.5 million.