November 17, 2020 / UK
On 13 October 2020, HMRC published its long-awaited updated guidance on the application of the Disguised Investment Management Fees (“DIMF”) and Carried Interest rules. We have reviewed the updates made since October 2016 and considered the potential impact for clients.
By way of background, the DIMF rules effective from 6 April 2015 were introduced to target amounts received by individuals that are, in substance, management fees and so ought to be subject to tax as trading income regardless of the underlying nature of those amounts at the fund level (income tax at a max. rate of 45% and Class 4 NIC at a max. rate of 2%). Defined carried interest and co-investment arrangements were carved out from the rules. From 8 July 2015, holders of carried interest no longer became entitled to reduce their capital gains arising through ‘base cost shifting’ and the Finance Act 2016 brought a type of carried interest, ‘Income Based Carried Interest’ (“IBCI”) within the DIMF rules. The rules are highly complex and widely drawn which explains why we have come across a number of different interpretations to the rules.
The original guidance to these rules was set out in HMRC’s Technical Note ‘Investment Managers: Disguised Fee Income’ dated 29 March 2015 and a later draft revised version was circulated in October 2016. However, no further guidance has been released until 13 October 2020…
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