Private equity funds taxation in Great Britain

Many enterpreneurs choose to create companies and open accounts in British banks for the purposes of an international business. The British jurisdiction is so attractive because firstly it is a very prestigious site and secondly it provides auspicious conditions for running a business.

Let’s see how taxation in Great Britain is organized and especially how the PEFs are taxed.

Tax liability

Here are some useful facts to take into account before establishing a PEF in Great Britain:

  • Funds determined as ELPs are not supposed to be viewed as separate individuals liable to taxation.
  • While ELPs are not liable to taxation (income, investment income), there is no WHT as far as distribution between investors is concerned.
  • Investors of the fund are viewed as individuals who have a proportional distribution of the shares of the fund determined by the proportional distribution of profits.
  • If the investor is a British resident, their appropriations are a subject to tax according to their personal tax status.

Taxation of non-British investors

Non-UK investors’ profits from the funds should not be taxed unless the fund is involved in the trading activities. It should be taxed in case the non-British investor is profiting of the fund for trading in the UK via subsidiary or in a different way.

Non-UK investors are required to pay so called CGT (Capital Gaines Tax for residential property) as well as shares in other companies. In addition, there are other facts to consider for those planning on registering a fund in the UK:

  • Investors who permanently live outside the UK can obtain tax deductions under Domestic traffic area (DTA) between Great Britain and their home country.
  • Non-UK investors may be required to inform British tax authorities about fund-related information and register it. Funds might have to file a tax return on collaborations in the UK.
  • Partnerships are supposed to provide information about partners from the years 2018-2019 in accordance with international modes of providing information. In case in this time period partnerships were not liable to tax in Great Britain and did not participate in trading, they do not need to submit a tax certificate.

Tax authorities in Great Britain

There are no special regulations for businessmen starting a PEF in the UK. Investors for these funds do no need to register them with HMRC. Nonetheless, there are certain rules imposed by British government for taxing service providers related to investment management of the funds and interested parties.

Other tax-facts to take into consideration

Tax authorities of the UK regard all taxable profit of non-British residents just as profit of persons engaged in delivering services related to investment management, like if they would come from the same source.

As stated in the newly updated regulations on profit-based interest rates, if AWHP of an investment payment is more than forty months interest evolving from or after 2016 are a subject to preferential treatment of CGT.

Interest is liable to taxation in the UK as well as contributions of sole entrepreneurs in case AWHP does not exceed three years.

Are you planning to start a bank account or to register a PEF in the UK? Our specialists in COREDO will gladly assist you and provide you with a professional consultation.