PLC - Investment Funds Flashcards
What is an open-ended investment fund?
An open ended fund allows for investors to subscribe and redeem interests in the fund on an ongoing basis.
What is a closed-ended investment fund?
A closed-ended fund has a fixed-term whereby investors subscribe for interests during an initial offering period and are then unable to withdraw from the fund (other than by permitted transfers to secondary purchasers) until the end of the fund’s life.
What is FATCA?
A new US withholding tax and information reporting regime which is being phased in between 2014 and 2017 which seeks to incentivise non-US financial institutions (FFIs) to disclose the identities of their US account holders.
What is the technical term for investment funds for the purposes of the relevant tax and regulatory regimes?
Collective investment schemes and (as of June 2013) co-ownership/ partnership schemes (known as authorised contractual schemes) under sections 235 and 235A FSMA 2000.
If a company is used to constitute an investment fund, in what circumstances can the fund constitute a collective investment scheme?
Where the company consitutes an OEIC.
What is the primary tax issue when considering an investment fund from the point of view of an investor?
That investment via a fund is not disadvantageous compared to direct investment.
What are the three main mechanisms for ensuring an investment fund is tax neutral so far as possible?
Ensuring the fund is tax transparent, ensuring the fund benefits from an exemption from tax if it is not transparent, and establishing the fund in an offshore low-tax/ no-tax jurisdiction.
How are private equity funds usually structured for investment fund purposes?
As limited partnerships.
How are hedge funds usually structured for investment fund purposes?
As offshore companies or partnerships.
How are real estate funds usually structured for investment fund purposes?
As limited partnerships or offshore companies. PAIFs and REITs may also be used.
AUTs and OEICs are usually designed for who?
Retail investors who wish to invest in quoted stocks or bonds.
What is the position in terms of UK residency if a UCITS fund manager in a member state of the EU (other than the UK) if it has a UK resident fund manager?
The UCITS fund will not be resident in the UK for tax purposes on that basis alone - see section 363A TIOPA 2010.
How are disguised management fees dealt with?
Section 21 of the Finance Act 2015 inserted a new Chapter 5E into Part 13 of the Income Tax Act 2007, which provides that certain sums received by investment managers for their investment management services in the context of arrangements involving at least one partnership will be subject to income tax. The legislation applies to sums arising on or after 6 April 2015, regardless of when the arrangements giving rise to the sums were made. It is in response to arrangements entered into by investment funds (such as private equity funds) involving partnerships or other transparent vehicles to convert trading income into capital receipts by way of structuring annual fees as priority partnership shares.
How are performance-related fees treated for tax purposes?
Clause 37 of the Finance Bill 2016 will insert a new Chapter 5F into Part 13 of ITA 2007. This provides that, if an individual performs investment management services for a collective investment scheme or investment trust, any sum of performance-linked reward (carried interest) will be subject to capital gains tax if the fund holds the investments, on average, for at least three years and four months. If the average holding period is between three years and three year and four months partial capital gains tax treatment will be available. If, however, the average holding period is less than three years the individual fund managers will be subject to income tax and Class 4 National Insurance contributions on the carried interest. This treatment will apply to sums of carried interest arising on or after 6 April 2016, regardless of when the arrangements giving rise to those sums were entered into.
