Revenue & Customs Brief 48/08

VAT: Exemption for fund management services

Changes to the VAT exemption for fund management services from 1 October 2008 were announced at this year’s Budget in BN74. The Value Added Tax (Finance) Order 2008 (SI 2008/1892) was laid in July to effect these changes.

Following further representations and consultation with stakeholders, the Order has been replaced to clarify the scope of certain of the changes and to introduce a de minimis provision. These amendments concern fund management services in respect of 'recognised overseas schemes' which are collective investment schemes established outside the UK, but are 'recognised' by the Financial Services Authority in order for them to be marketed within the UK.

The first change concerns funds which are constituted as 'umbrellas' containing a number of distinct sub-funds. In such a case, only management services provided in respect of each sub-fund marketed to UK investors are exempt. This follows the policy originally described in the draft guidance, now updated, and this is now made clear in the amended legislation.

The second change introduces a de minimis provision, whereby the management of a recognised overseas scheme (or each sub-fund if an umbrella), which is not for the time being marketed in the UK, and has never been marketed in the UK, or has less than 5 per cent of its shares or units held by, or on behalf of, UK investors falls outside the VAT exemption.

The Value Added Tax (Finance) (No.2) Order 2008 makes these changes and the draft guidance has been updated pending its inclusion in the guidance manuals.

Issued 1 October 2008