With upcoming elections in both the US and UK and the global economy taking centre stage in the unfolding drama of fiscal policy and financial stability, 2024 promises a landscape marked by a delicate dance between Central Banks and the spectre of inflation. Simultaneously, the geopolitical stage is ablaze with uncertainty, as high-stakes diplomatic manoeuvres and tensions create an unpredictable backdrop for decision-makers. Strategists cautiously peer into their crystal balls, forecasting a 2024 characterized by slower growth trajectories, yet hoping to avert a recession. The challenge of the year lies not merely in economic data and policy decisions, but in the intricate interplay of forces that could shape the global financial landscape for months and years to come. Asset managers will have no easy job navigating such environment. With this in mind, we look at the key areas of UK taxation that are likely to impact the asset management industry in 2024.

  • Vote winning tax changes – with political parties gearing up for a general election there is buzz around potential tax changes. The Conservatives are promising tax cuts: reducing levies on income, abolishing inheritance tax and lowering corporation tax. Expect the big announcements in the next Budget scheduled on 6 March 2024. The Labour party have also stated that they want to cut ‘workers’ taxes, but at the same time they want to impose VAT on private school fees, remove non-dom tax status and change tax treatment of carried interest received by private equity fund managers.
  • Corporate Criminal Offence (CCO) – we understand that HMRC will be holding a Counter Fraud Forum specifically for asset managers this year. The aim of this event is to support conversations on the CCO which was introduced in September 2017. HMRC is interested in how firms are implementing CCO; they would like to educate firms and create a collaborative environment. The CCO rules impose unlimited fines on companies or partnerships enabling tax evasion (both in the UK and overseas) by any of their representatives, i.e. employees, agents, related enterprises etc., and failing to take preventative measures. Asset managers are expected to ensure they have preventative policies and procedures in place to protect themselves from falling foul of the legislation.
  • Transfer pricing – the HMRC consultation in relation to the reform of UK legislation relating to transfer pricing, permanent establishments and Diverted Profits Tax concluded last year. The response has been published on 16 January 2024. It is clear that the investment management exemption (IME) will be retained, but HMRC would like to modernise the IME to ensure its application is clear and continues to provide assurance to the asset management sector. As HMRC/HMT continues to engaged with the industry on the these matters, a technical consultation on draft legislation will be held in 2024. We have seen an increased number of asset managers opening offices in overseas jurisdictions, such as the UAE and Singapore. Cross boarder transactions between connected parties should be considered from transfer pricing perspective and asset managers, regardless of their size, should maintain and document an OECD compliant transfer pricing policy as the best practice, given the potential interaction with the UK’s IME and disguised investment management fee (DIMF) legislation.
  • Salaried member & Mixed membership rules – there is general frustration within the asset manager community that has been effected by the salaried member and mixed membership rules as the tax enquiries relating to these rules have been dragging over to 2024 with no sight of resolution. The BlueCrest Salaried Members Case which went to the Upper Tribunal last year brought a positive outcome for portfolio managers as the judge confirmed that they would fail Condition B, nevertheless there was no further clarity for other roles within an asset management business so consideration will need to be given as to what extent these findings can be more broadly applied. In respect of Condition A, the emphasis is on the importance of maintaining robust evidence to support position – in particular that expectations regarding member’s remuneration need to be determined and documented at the relevant time.
  • Research & development (R&D) relief – the RDEC and R&D SME schemes will merge for accounting periods beginning on or after 1 April 2024 with expenditure incurred in accounting periods beginning on or after 1 April 2024 being claimed in the merged scheme. The rate offered under the merged scheme will be at 20%. The notional tax rate applied to loss-makers in the merged scheme will be lowered from 25% to 19%. Whilst the aim of this change is to simplify matters, the continuous changes to the regime create some uncertainty for businesses that have invested in multi-year R&D projects. Asset managers with R&D claims or ones considering applying should assess whether their R&D projects satisfy all the requirements and the supporting information for their claims is complete. HMRC is increasing scrutiny of R&D claims due to a high number of fraudulent cases.
  • Basis period reform – this measure changes the way trading income is allocated to tax years and will affect asset managers with LLPs that do not draw up annual accounts to 31 March or 5 April, particularly if they receive majority of their fund management fees at the calendar year end. The changes will be fully in play from 6 April 2024 (2024/25 tax year), with 2023/24 tax year being a transitional year. An LLP manager with a 31 December year end will have to report to HMRC profits for the period from 1 January 2023 to 5 April 2024 for the 2023/24 tax year. Any brought forward overlap profits can be relived in that period, and any transitional period additional profits will be spread over a period of up to five years. The advice for the effected asset managers is either to retain their existing accounting period and work of provisional/estimated figures for the tax assessments or change the accounting period to align with the tax year.
  • Crypto assets – at the end of last year HMRC launched a voluntary disclosure facility for individuals to report unpaid tax on income or gains from crypto assets, including exchange tokens, non-fungible tokens and utility tokens. Taxation of crypto assets in the UK is complex and professional tax advise may be required for individuals with unreported income and gains. It is clear that taxation of crypto assets will be a high priority topic for HMRC in the coming years and individuals investing in crypto need to be aware of the tax implications. With the annual exemption for capital gains tax going down to £3,000 from April 2024 it is likely that more individuals will be chargeable to tax.
  • DIMF rules – HMRC continues to focus on targeted anti-avoidance legislation such as DIMF and with the number of tax enquiries in this area increasing, asset managers should be mindful of any open tax risks that could be subject to HMRC scrutiny. DIMF rules aim to ensure that fees are correctly charged to UK income tax where investment management services have been undertaken in the UK. The legislation applies to both management and performance fees and imposes an income tax charge on the deemed UK trading income of individuals, where untaxed fees are considered to ‘arise’ to the investment managers, irrespective of whether they physically receive the fees. For further detail, please refer to our article – DIMF and carried interest – In search of guidance?