Tax-transparent fund proposals to boost pensions

HM Treasury has launched a consultation on its intention to authorise tax-transparent collective investment schemes, which could cut the withholding tax paid by UK schemes.

The document, published earlier this month, seeks to address the issues which have prevented ‘master-feeder structures’ being set up to allow UK investors to pool overseas investments.

These funds were authorised last summer under the UCITS IV directive, but to be attractive to institutional investors, HMT believes they must enable exempt investors like pension funds to claim their preferential withholding tax.

Investment Management Association head of tax Jorge Morley Smith said this would benefit corporate sponsors with schemes in different European countries.

“Under the terms of most double tax treaties, pensions get preferential withholding tax treatment, but they are only able to access that if they have an investment directly into the relevant security in that jurisdiction,” he said. “By investing through a transparent vehicle they get treated as if they invested directly.”

Morley Smith added that the new rules would allow these schemes to benefit from economies of scale by pooling resources.

Association of Consulting Actuaries international committee chairman Paul Kelly said he expected his association to back the Treasury’s intentions in its response.

“The UK has been behind in this area compared to countries like The Netherlands and Ireland,” he said.

“This will be of greatest interest to corporates, but if tax efficiency translates into more money for schemes and stronger sponsors, then it’s very welcome.”

The Treasury intends to make the required legislative changes before the end of the year.