As we look ahead to 2025, the environment and opportunities set for asset managers are looking favourable. Nevertheless, changes in economic, social, political and technological areas will create challenges in 2025. The re-election of Donald Trump is likely to have far-reaching consequences beyond the US domestic economy and impact global geopolitical landscape. Europe will have to respond to the ‘America first’ sentiment with more support for their own economies. Impact of the Artificial Intelligence cannot be overlooked with it being labelled as the structural game changer for all the industries and transformational force to be reckoned with. Increased use of Artificial Intelligence, machine learning, and data analytics will continue to transform investment processes. In 2025, asset managers will need to stay agile in response to evolving changes. With this in mind, we look at the key areas of UK taxation that are likely to impact the asset management industry in 2025.

  • Salaried Member Rules – The saga continues with the Court of Appeal releasing their judgement on the BlueCrest Salaried Members Case. The judgement brings further uncertainty for UK asset managers with LLPs, as the judges concluded on a narrow interpretation of Condition B, significant influence, disregarding HMRC’s published guidelines. With the majority of LLPs having 31 March year end the immediate action may be required, as such some of the sensible steps may be: re-evaluate the application of the Salaried Member Rules in light of the recent judgement, quantify probable financial impact on the business, review existing compensation structure (Condition A) and document position in advance of the year end.
  • Non-Domicile Regime – April 2025 will bring an end to the ‘non-dom’ regime which was part of the UK system for over 200 years. It will be replaced by a new residence based regime, which will provide 100% relief on foreign income and gains (‘FIGs’) for new arrivals to the UK in their first 4 years of tax residence, provided they have not been UK tax resident in any of the 10 consecutive years prior to their arrival (‘4-year FIGs regime’). The protection from tax on FIGs arising within settlor-interested trust structures will no longer be available for non-domiciled and deemed domiciled individuals who do not qualify for the 4-year FIGs regime. Individuals who have been UK resident in ten out of the last twenty tax years will be subject to Inheritance Tax (‘IHT’) on their worldwide assets, and will remain within the scope of IHT for up to ten years following exit from the UK. The IHT ‘tail’ will depend on how long they were resident in the UK.  Transitional rules will apply for individuals who are non-UK resident for the 2025/26 tax year. Also, temporary repatriation facility will be available but tax advice should be thought as it may not be appropriate in all circumstance.
  • Key Tax Rates – the Corporation Tax (‘CT’) rate is set to stay at 25% for the next fiscal period, nevertheless employers will face 15% rate of employers’ National Insurance Contributions (‘NIC’) from 5 April 2025. For an asset manager with employees the change equates to an increase in employer’s NIC of approximately £1,150 for an employee on £50k per annum, an increase of £1,750 for an employee on £100k per annum and £2,950 for an employee on £200k per annum.

For individuals, the basic rate of Income Tax remains at 20%, the higher rate at 40% and the additional rate at 45% for 2025/26. The additional rate of 45% is paid on income over £125,140. Capital Gains Tax (‘CGT’) rates are 18% for below higher rate band and 24% for higher/additional bands. Additional rate of Dividend Tax is set at 39.35% for 2025/26.

Based on the effective tax rates LLPs are still the most tax efficient vehicles from pure profit extraction perspective:

  • Carried Interest capital gains tax rate will increase from 28% to 32% from April 2025. Further changes to carried interest will be introduced from April 2026, bringing carried interest within the income tax framework, subjecting it to Income Tax and NICs. The amount of ‘qualifying’ carried interest subject to these taxes will be adjusted by applying a 72.5% multiplier giving an effective income tax rate of 34.075% including class 4 NIC (highest marginal rates assumed). Broadly this will be to retain the income based carried interest regime for short term carry (less than a 40 months average asset holding period). The exception for employment related securities will be removed.
  • Transfer Pricing – we have seen great interest from asset managers in setting-up offices/relocating to low /nil tax jurisdictions. The UAE has been a popular location for set-up of an additional office to house portfolio managers and senior staff. Last year HMRC released new guidance on best practice approaches to transfer pricing to provide clarity and transparency regarding compliance expectations. The new guidance emphasises the importance of engaging specialists, not only in terms of understanding the transfer pricing rules but also in terms of the industry. As asset management specialists Larkstoke works with a wide range of businesses to design, develop and implement their transfer pricing policies. 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 Investment Manager Exemption and disguised investment management fee (‘DIMF’) legislation.
  • Economic Crime and Corporate Transparency Act (‘ECCTA’) / Corporate Criminal Offence (‘CCO’) – in October 2024, the FCA published their final notice and penalty with regards to the CEO of Wise PLC, who failed to ensure that the FCA was notified of relevant information relating to a significant financial penalty imposed on him by HMRC. The FCA considers tax issues, such as HMRC’s adverse determination and any subsequent actions taken, as significant and therefore liable for proper assessment and notification. This case highlights FCA’s strict expectations around transparency and compliance with rules and regulations. The Criminal Finances Act (CFA) 2017 and more recently the ECCTA 2023 are the two main pieces of legislation that focus on fraud and tax offences. Asset managers are expected to ensure they have preventative policies and procedures in place to protect themselves from falling foul of the legislation and requirements under the ECCTA and CCO.
  • Research & Development (R&D) Relief – the RDEC and R&D SME schemes merged for accounting periods beginning on or after 1 April 2024. The rate offered under the merged scheme is at 20%. The R&D credit is taxable meaning the effective relief rate is 15% for companies liable to the main rate of CT at 25% . 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. At the end of last year HMRC launched an R&D-specific voluntary disclosure service.
  • 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?