IMA calls for abolition of fund stamp duty reserve tax

Responding to the Treasury/HMRC Discussion Paper on simplification of the Schedule 19 Stamp Duty Reserve Tax (SDRT) regime, the Investment Management Association (IMA) argues that total abolition remains the best option for the UK in order to stem the flow of funds offshore, where investors perceive them to be less heavily taxed.

A new report by the IMA and KPMG quantifies for the first time the tax loss suffered by the Exchequer when funds move offshore. It finds that for every £1 billion of funds domiciled offshore instead of in the UK, the cost is nearly £900,000 a year. In other words, if a further £80 billion of funds (i.e. 17% of current UK total funds under management) were to move offshore, the loss to the Exchequer would be the equivalent of the entire current Schedule 19 tax take. European industry data indicates that the UK funds industry has lagged behind Dublin and Luxembourg over the last 10 years, with the UK tax regime being identified as a factor in this. Furthermore, the onerous SDRT regime has contributed to the loss of revenue that the Treasury has faced to date.

Commenting, Julie Patterson, Director of Authorised Funds and Tax at the IMA said: "The Schedule 19 SDRT regime is costly and increasingly unsustainable. The Discussion Paper suggests that abolition is not a viable option because it would result in the loss of £70m a year to the Exchequer. However, the findings of the IMA and KPMG report demonstrate that abolition, as part of a package of reforms, could quickly offset the lost SDRT revenue through the benefit in other tax revenue if funds stayed in the UK.

The Discussion Paper offers two options for simplification, and it is welcome that the Government is open to reform. Both options proposed, though, have administrative and marketing downsides, and we continue to believe that abolition is the only sensible outcome. The UK has already seen a large outflow of funds, and while it is unlikely that funds will return in significant numbers in the short term, it is ever more crucial to halt the exodus."