HH Revenue & Customs (HMRC) has launched a consultation on the proposed inclusion of cryptoassets – such as cryptocurrency – in the investment manager exemption (IME).
The IME uses qualifying tests to provide certainty that non-UK resident investors can appoint UK-based investment managers to conduct certain investment transactions on their behalf, without bringing them into the scope of UK taxation.
The Investment Transactions List (ITL) establishes the types of transactions that may qualify for the IME. The ITL is kept under review to reflect continued evolution of the investment management industry.
The government’s FinTech Sector Strategy was introduced by the Chancellor of the Exchequer in March 2018. It sets out the government’s ambition to work with the UK’s financial services sector to maintain the UK’s position as one of the leading financial centres globally, and to ensure that the UK is the world’s most innovative economy.
On 4th April 2022, the Economic Secretary to the Treasury announced the next steps for the government’s FinTech Sector Strategy at the Innovate Finance Global Summit. The government seeks to establish clear UK tax and regulatory treatment of cryptoassets to place the UK at the forefront of safe, sustainable and rapid innovation in cryptoasset and blockchain technologies.
One of those measures will be to expand the IME to include types of cryptoassets. This will provide certainty of tax treatment to UK investment managers and their non-UK resident investors who are seeking to include cryptoassets within their portfolios, and the government hopes that this will lead to new cryptoasset investment management businesses basing themselves in the UK.
HMRC said they were “considering the adoption of a cryptoasset definition for the ITL which is similar to that proposed in the Crypto-Asset Reporting Framework published by the Organisation for Economic Co-operation and Development (OECD) in March 2022”, though they said “the OECD’s proposed definition is broad and HMRC would seek to refine such a definition to ensure that the inclusion of cryptoassets cannot be used to circumvent categories of assets currently excluded from the ITL”.
A summary of the consultation’s questions is as follows:
- Question 1: What types of cryptoassets are investment managers seeking to include as part of their product offer?
- Question 2: Are there any particular definitions, in regulatory or other contexts, that investment managers find useful in defining cryptoassets? Please provide details.
- Question 3: Are there any existing UK activities involving cryptoassets which would need to be excluded from the ITL in order to prevent a reduction in tax receipts?
- Question 4: Please outline the likely types of funds that will start or continue to manage from the UK as a result of including cryptoassets within the scope of the IME.
- Question 5: Do any funds within the scope of the rules listed in Chapter 1 Paragraph 11 currently hold cryptoassets? If so please provide details of the types of fund and cryptoassets held, and whether such funds generally treat these activities as investment or trading activities.
- Question 6: Please outline the types of UK fund products that are currently offered, or may be offered in future, which would benefit from the inclusion of cryptoassets in the ITL.
- Question 7: Please identify any differences in the definition of cryptoassets that would be needed for UK funds compared to that required for the IME.
- Question 8: Do respondents have any comments on the assessment of impacts of these proposals in the Exchequer Impact Assessment?
The consultation is set to end Monday 18th July 2022. Responses can be sent to [email protected] or by post to:
Investment Manager Exemption Team
B8.22 Stratford Regional Centre
Central Mail Unit
HMRC also say they “will consider holding meetings with interested parties to discuss the proposals in this consultation”, and that “the timing, format and venue of meetings will be informed by expressions of interest received”.