Part 13Tax avoidance
F7CHAPTER 5EDisguised investment management fees
809EZADisguised investment management fees: charge to income tax
1
Where one or more disguised fees arise to an individual in a tax year from one or more investment schemes (whether or not by virtue of the same arrangements), the individual is liable for income tax for the tax year in respect of the disguised fee or fees as if—
a
the individual were carrying on a trade for the tax year,
b
the disguised fee or fees were the profits of the trade of the tax year, and
c
the individual were the person receiving or entitled to those profits.
2
For the purposes of subsection (1) the trade is treated as carried on—
a
in the United Kingdom, to the extent that the individual performs the relevant services in the United Kingdom;
b
outside the United Kingdom, to the extent that the individual performs the relevant services outside the United Kingdom;
and for this purpose “the relevant services” means the investment management services by virtue of which the disguised fee or fees arise to the individual in the tax year.
F32A
Subsection (2B) applies instead of subsections (1) and (2) where—
a
one or more disguised fees arise to an individual in a tax year (“the relevant tax year”) from one or more investment schemes (whether or not by virtue of the same arrangements),
b
the disguised fees consist of carried interest which is income-based carried interest,
c
the individual is UK resident in the relevant tax year,
d
before the relevant tax year, the individual was not UK resident for a period of at least five consecutive tax years (“the period of non-residence”), and
e
either—
i
the relevant tax year is the first tax year immediately after the end of the period of non-residence, or
ii
the relevant tax year is the second, third, or fourth tax year after the end of that period and the individual has been UK resident in all the intervening tax years.
2B
To the extent that the income-based carried interest arises by virtue of pre-arrival services, the individual is liable for income tax for the relevant tax year in respect of it as if—
a
in relation to pre-arrival services performed in the United Kingdom—
i
the individual were carrying on a trade for the relevant year consisting of the performance of those services,
ii
the income-based carried interest, so far as arising by virtue of those services, were profits of that trade, and
iii
the individual were the person receiving or entitled to those profits, and
b
in relation to pre-arrival services performed outside the United Kingdom—
i
the individual were carrying on a trade for the relevant tax year consisting of the performance of those services,
ii
the income-based carried interest, so far as arising by virtue of those services, were profits of that trade, and
iii
the individual were the person receiving or entitled to those profits.
2C
In subsection (2B) “pre-arrival services” means investment management services performed before the end of the period of non-residence.
3
For the purposes of this Chapter a “disguised fee” arises to an individual in a tax year from an investment scheme if—
a
the individual F2at any time performs or is to perform investment management services directly or indirectly in respect of the scheme under any arrangements,
F5b
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
c
d
some or all of the management fee is untaxed;
and the amount of the disguised fee is so much of the management fee as is untaxed.
4
For the purposes of subsection (3) the management fee is “untaxed” if and to the extent that the fee would not (apart from this section)—
a
be charged to tax under ITEPA 2003 as employment income of the individual for any tax year, or
b
be brought into account in calculating the profits of a trade of the individual for the purposes of income tax for any tax year.
5
In subsection (4) “trade” includes profession or vocation.
6
In this Chapter “investment scheme” means—
a
a collective investment scheme, or
b
an investment trust.
F47
The reference in subsection (6)(a) to a collective investment scheme includes—
a
arrangements which permit an external investor to participate in investments acquired by the collective investment scheme without participating in the scheme itself, and
b
arrangements under which sums arise to an individual performing investment management services in respect of the collective investment scheme without those sums arising from the scheme itself.
Pt. 13 Ch. 5E inserted (with effect in accordance with s. 21(4) of the amending Act) by Finance Act 2015 (c. 11), s. 21(1)