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Derivatives

U.K. Tax Body To About Turn On Hedge Fund Tax

The Inland Revenue, the U.K. tax authority, will publish a favorable tax regime for onshore hedge funds, a move which surprised many officials because the Revenue published a harsh technical paper on this issue earlier this year.

The Inland Revenue, the U.K. tax authority, will publish a favorable tax regime for onshore hedge funds, a move which surprised many officials because the Revenue published a harsh technical paper on this issue earlier this year. The onshore hedge funds, called Qualified Investor Schemes, are able to use derivatives and leverage.

U.K. regulator the Financial Services Authority paved the way for QIS in April, but the revenue had put a spanner in the works with a technical paper suggesting the new funds should be taxed as a company or trust--meaning investors would be taxed twice on their investment (DW, 9/10).

Fund managers have held back from launching the funds because of the tax uncertainty, but officials believe the responses to the technical paper, overwhelmingly in favor of treating QIS in the same way as other authorized investment funds, convinced the Revenue to come into line with industry opinion. Several respondents to the Revenue's technical paper called for a full-scale review of the taxation of derivatives used by authorized investment funds. Paul Hale, partner at law firm Simmons & Simmons, thinks a review is inevitable, but believes it will likely be held off until after the U.K. election. The election is likely to be in May.

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