There has been a positive development for asset managers and crypto assets as on 9 December 2022 the UK Government confirmed that crypto assets will be included in the list for the Investment Manager Exemption (IME).

Following the consultation the government concluded to use the current OECD definition of crypto assets published in the Crypto-Asset Reporting Framework (CARF) on October 2022. This definition is suitably wide-ranging to encompass the financial products and investments which are of interest to the investment managers. In the published consultation outcome document HMRC noted that as crypto assets evolve so rapidly, the definition should be reviewed and updated regularly to ensure its relevance.

It will be interesting to see the exact guidelines on this matter, as HMRC highlighted that “in order to protect against the risk of abuse it is necessary to exclude transactions in crypto assets created or issued by the investment manager, non-UK resident fund or parties connected to them”.

HMRC intends for changes to the IME to come into force by the end of the 2022 calendar year with effect in relation to transactions entered into during the 2022 to 2023 tax year for non-corporate entities, and accounting periods current on 31 December 2022 for corporate entities.

This change will affect the Investment Transactions List (ITL) only for the IME purposes and will not apply to other fund tax regimes which also use the ITL.

IME is an important statutory concession that makes the UK an attractive jurisdiction for asset managers as a UK based investment manager will not constitute a UK representative of a non-resident person (i.e. an offshore fund) as long as certain conditions are satisfied. Respondents to the consultation believe that the inclusion of the crypto assets on IME’s ITL will “lead UK investment managers to expand their crypto asset strategies, and the UK to become more attractive as a base for new investment management businesses”.