The Alternative Investment Management Association (AIMA) – the global hedge fund industry body has urged the government to reconsider its planned measures to increase taxes for non-domiciled individuals.
In a letter responding to HM Treasury’s Consultation on Residence and Domicile, AIMA has argued that the measures could result in a reduction in overall UK tax revenues by causing non-UK domiciled hedge fund managers to relocate to other jurisdictions, and put others off setting up hedge funds in the UK.
Of the 83 UK hedge fund management firms that responded to an AIMA member survey in the last week, 77% confirmed that over half of their workforce are non-UK domiciled, while 11% said that over three quarters of their workforce is non-UK domiciled. Over 60% of all respondents said that they would be affected by the changes.
The results have led AIMA to outline its concern at the government’s proposed levy.
Given that this is an area of great concern and vital economic importance, AIMA has urged that the introduction of the measures outlined in the Pre-Budget Report, and associated issued draft legislation, be postponed to allow for further reflection on the impact of the proposed changes, and to ensure the detail is right. It is likely that the contribution already made to the UK by non-domiciled hedge fund managers, and their families, far outweighs the additional 30,000 per capita which would be collected from those who remain in the UK to pay it.
“This presents a serious threat to the UK financial services industry and the UK economy as a whole,” says Andrew Baker, deputy CEO, AIMA.
“Unfortunately, we believe that the proposed measures will cause these key people to re-assess their positions and potentially migrate to more favourable jurisdictions over the next 18 months or so. We urge HM Treasury to reconsider the measures and potential impact carefully and comprehensively. At the least, we ask that the introduction of the measures outlined be postponed, while full consideration of the impact and the detail is undertaken”.
The global hedge fund industry continues to grow year on year at an impressive rate, and London is now the premier location in Europe for hedge fund managers with almost 80% of assets under management in Europe managed from London.
This success is due to the UK’s robust legal environment and regulatory regime, access to the best professional services and, crucially, a tax system that is attractive to highly talented international individuals who want to conduct their specialist financial operations from London in the knowledge that their economic interests outside the UK are not put at risk in doing so.
AIMA believes that the proposed measures risk undoing the government’s excellent work in other areas to encourage and sustain the hedge fund industry in the UK.
Subject to the responses, the government intends to introduce changes from April 2008.