The Investment Association has called for the UK government to develop a new tax regime or introduce tax exemptions for UK funds, in order to compete as a global hub for fund management.
In response to HM Treasury's call for input into the UK funds regime, the IA has said that if the UK wants to be a "compelling global fund hub", supporting a wide range of global investors, there is a need to depart from the current approach to taxation.
“The UK has been left behind when it comes to comparative levels of funds under management, with the tax regime still perceived to be a significant contributor to this lag,” the report added.
Chris Cummings, chief executive of the IA, told FTAdviser's sister publication the Financial Times that Brexit was an important opportunity for the UK to define an innovative and responsible policy framework for investment funds.
“This will ensure that we continue to attract world-class firms to serve British and international customers, while also supporting the UK’s ambition to become the global centre for responsible and sustainable investment,” he said.
The IA said the extension of zero-rating to all UK funds would eliminate the many issues that the current VAT rules give rise to, which included litigation.
The report mentioned two jurisdictions, Ireland and Luxembourg, that currently offered a wide range of fund vehicles that matched the demand from investors.
“Whilst the UK regime technically works for some strategies, it does not work for all strategies and this limits its potential as a fund hub,” the report said.
The IA added that the UK was at "a critical juncture" on the journey towards becoming net zero carbon by 2050, and the country is facing a once-in-a-generation opportunity to set out a blueprint for the long-term growth of the economy, of which funds could play a big part.
The IA also encouraged the government and regulators for an industry-wide standard to be created for the reporting of ESG factors for products and funds, in alignment with the EU sustainable finance rules.
IA figures show net retail sales to responsible investment funds grew to £11.7bn in 2020.
The proposals are included in the Investment Association’s submission to the Treasury’s call for input on an evaluation into the UK funds regime.