UK funds face admin headache under tax proposals

Reporting requirements will hit those with fund of funds investors and non-resident partners particularly hard.

The administrative burden on certain UK fund partnerships will increase under proposed tax laws expected to come into force in April 2018.

Depending on how the final rules are written, it could mean investors that are not currently named on partnership tax returns will have to be in future.

This would have the biggest impact on partnerships with non-resident partners, who most commonly use the “nominee arrangement.” This allows non-UK resident partners to name a UK nominee to receive their profits, with aggregate returns to all NRPs invested in the fund included as one entry on the partnership tax return.

“This proposal will increase administration costs for companies, their advisors and HMRC, with no benefit or tax intake,” Mark Waddilove, tax partner at RSM, said.

The new rules would also require any profit-generating partnership with a partner that is itself a separate partnership – such as a fund of funds LP – to report to details of each of the partners, and calculate each partners’ taxable profits on all four UK tax bases. These bases are UK resident individuals, non-UK individuals, UK resident company and non-UK resident company.

“Tracking through each level of ownership up to the ultimate recipients of profit would be a huge administrative task,” law firm Goodwin wrote in a note to clients.

Funds that have already provided details of their partners and their tax calculations under the OECD’s Common Reporting Standards will not have to provide these details again in their partnership tax returns.