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The IMA has also submitted evidence to the Treasury Select Committee for its inquiry into offshore financial centres arguing that the UK is losing out as offshore domiciled funds, claiming that they are becoming the preferred choice over UK domiciled funds for regulatory and tax reasons.

Richard Saunders, chief executive of the IMA, said: "It is an open secret in the funds world that if you want to launch a new product you don't base it in the UK and that is for tax reasons.

"This is not to minimise or avoid your own taxes, but to avoid complexity and to reduce the risk of your client being exposed to an unexpected and unjustified hit."

According to Saunders, a package of reforms should be made in the 2009 Budget, including the introduction of a tax-exempt regime for UK authorised funds and the introduction of legislative certainty that funds will be treated as investing not trading for tax purposes.

Saunders said the reforms should also include the abolition of Schedule 19 stamp duty reserve tax on fund units and the removal of the 10 per cent limit on single investors in qualified investor schemes.

"We do not want tax breaks or the Treasury to spend a lot of money on us. In fact, our latest information is that UK-based fund managers run €535bn in Ireland and Luxembourg alone.

"If those funds were located in the UK instead, we estimate that the Treasury would get an extra £300m a year in employment and corporate taxes.

"We need a regime that does not work to the disadvantage of the UK and encourage business to move offshore. At a time of economic slowdown and a growing public sector deficit, that is simple good sense."