In addition to the changes to the capital gains tax treatment of private equity carried interest announced today, HMRC has published a Consultation Document which appears to be targeted mainly at hedge fund managers. It aims to ensure that individuals who manage funds where the underlying activities are more closely aligned to trading than investing pay full income tax on any carried interest or other performance incentive.
The issue does not arise where the managers receive performance fees under their management agreement (as that is already trading income), nor where a partnership is clearly trading (as any carried interest would be taxed as a share of trading profits and therefore as income). HMRC is concerned that there is a grey area between trading and investment and that the traditional "badges of trade", which were designed for old-style sale of goods, are no longer fit for purpose in this context. HMRC believes that … Continue Reading ››
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