The United Kingdom has missed out as a domicile for European long-only funds to the benefit of Luxembourg and Ireland because of a burdensome and over-complex tax system, according to a reportcommissioned by the Investment Management Association. However, say the report’s authors at KPMG, it’s not yet too late for the UK to become a significant domicile for alternative investment products including hedge funds, property funds and absolute return funds using a UCITSstructure.
According to IMA chief executive Richard Saunders and Jane McCormick, head of tax and financial services at KPMG, while the UK is demonstrably a vibrant investment management centre and by far theleading European location for hedge fund managers, during the decade to the end of 2005 Luxembourg and Ireland saw domiciled fund assets grow six and 31 times respectively, while the assets of UKfunds grew only threefold.
In addition, the report found, since legislative changes in July 2004 lifted tax penalties on some offshore funds, Luxembourg and Irish funds authorised for distribution throughout the European Unionhave started to make inroads into the UK domestic market, which previously had been largely restricted to locally domiciled funds, rising from one to 21 per cent of total sales. However,only a handful of asset managers have sought to distribute UK funds in other European markets.
