UK’s funds regime to be overhauled

Following Brexit, the UK government has committed to a ‘root-and-branch’ review of the financial services industry. In January 2021, HM Treasury announced a broad consultation on boosting the international competitiveness of the UK’s asset management industry. Whilst the UK’s expertise in portfolio management is already well-recognized, the UK has not remained a favored jurisdiction for fund location and administration. Fund domicile will form part of the review. The wide-ranging regulatory and taxation review shall shortly assess the VAT treatment of fund management fees.

UK stock market set to attract tech and SPACs

It is recognized that there is an increasing shift towards fast-growth technology, e-commerce and science companies coming onto public markets, versus more traditional industries. Lord Jonathan Hill, the erstwhile European Commissioner for Financial Stability, Financial Services and Capital Markets Union, has carried out a systematic review and proposed reforms to the UK listings regime, designed to attract the most innovative and successful firms and help companies finance their growth.

The final findings of Lord Hill’s review are be reported to HM Treasury in early 2021, after gathering evidence from a wide set of stakeholders. The key recommendations have been welcomed and are expected to be acted upon speedily. The recommendations include:

• Allowing dual-class share structures (DCSS) that give more powers to founders, a practice pioneered by Google which is now commonplace in US equity markets;
• Lowering free float requirements from 25% to 15%, to enable companies to offer smaller chunks of their business for sale in initial public offerings; and
• Liberalizing of the listing rules for special purpose acquisition companies (SPACs) such that the UK can tap into the recent global boom in this market.

In the last year, SPACs have exploded in popularity in the US. SPAC deal volume grew sixfold in 2020 and has been identified as ‘a major area of growth’. SPACs are shell companies that raise money through an initial public offering to fund an acquisition of a private company. These deals are designed to make it easier for private companies to go public, while SPACs offer investors access to private businesses at an attractive price.

Enforcement powers

HMRC has been granted additional powers, such as their new ability to issue targeted Financial Institution Notices (FINs) to obtain customer information from financial institutions (including banks and fund managers). The new FINs obviate the need for the financial institution to seek the consent of the taxpayer who is the subject of the information request, or the prior approval of a tax tribunal upon application.

Capital Gains Tax (CGT)

Despite much speculation that CGT rates would be upwardly aligned with income tax rates in the March 2021 Budget, investors have been spared for now. There has been considerable activity to realize gains ahead of the widely-anticipated rate hike.

There were no changes announced in the Budget to the rates of CGT, with the higher rate remaining at 20% and the basic rate at 10%. The 28% and 18% rates continue to apply to chargeable gains made on the disposals of residential property. Where CGT treatment applies in respect of carried interest, the flat 28% rate continues to be applicable.

If you wish to discuss these topics, please contact: Hansuke, London

Read the WTS Global Financial Services Infoletter here.