Fund firms in crosshairs of clampdown

Michael Bow
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FUND management partnerships will be blocked from reducing the tax they pay on management fee income from next April, as part of a broader crackdown on income tax avoidance.

Private equity firms and other alternative asset managers often pay capital gains tax on their management fee income rather than income tax, which is higher and costs them more.

The new measures will force firms to treat fee payments under income tax rules. Firms will be still be allowed to treat so-called carried interest, the earnings private equity firms earn from investments, as capital gains rather than income.

Tax treatment of private equity income has sparked debate on both sides of the Atlantic this year, with US President Barack Obama proposing to tax carried interest as capital gains rather than income.

The Treasury yesterday said it hoped to raise £360m over five years from the measure. Elsewhere, the Treasury said it would crackdown on tax relief available on travel expenses for people working through umbrella companies.