Stamp Duty Reserve tax: Changes to the schedule 19 regime for UK investment funds - Mazars - United Kingdom
Stamp Duty Reserve tax: Changes to the schedule 19 regime for UK investment funds
Although HMRC will not be abolishing the Schedule 19 regime for SDRT applicable to UK unit trusts and open ended investment companies, Finance Bill 2011 will remove a distortion that discourages UK funds of fund structures investing predominantly in non-UK equity investments via other investment funds.
The “Schedule 19 regime” is designed mainly to prevent those UK investment funds from being a “captive market” where UK equities are traded between investors without triggering SDRT, by the practice of “unit crossing”. While rules broadly prevent the special SDRT charge from applying to investments which are not subject to stamp duties, such as overseas equities and loan capital (“exempt investments”), this does not work efficiently where the fund holds the investments via another collective investment scheme, especially where the latter is offshore.
There are no provisions for looking through to the underlying investments of those schemes, although there is a very restrictive provision for exempting underlying funds which are Authorised Unit Trusts and allowed only to invest, broadly, in interest-bearing investments.
Currently, this means that if a UK fund invests in another fund holding exclusively US share, it could be subject to the Schedule 19 regime even though it would have been exempt had it owned the US shares directly. If it invests only in interest-bearing investments via an offshore fund, it would also be subject to the Schedule 19 regime because the underlying fund is not an Authorised Investment Fund.
Under the new legislation, it will be possible for a UK fund to claim an exemption for investment via any other collective investment scheme, offshore or onshore as long as the latter does not invest more than 20% in investments within the scope of UK stamp duty or SDRT, these being mainly UK equities.
For more information please contact:
Senior Manager, Financial Services Tax
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- Copyright 2012 - Mazars - United Kingdom
