IFM36140 - Overview: The legislation

The legislation

Summary of the legislation

The rules relating to disguised investment management fees (DIMF) are contained within ITA07/PART13. The DIMF rules are at Chapter 5E and contain ten sections 809EZA to 809EZH.

Chapter 5E is structured as follows:

  • S809EZA (1) explains the consequences that follow when a disguised fee arises to an individual from an investment scheme.
     
  • S809EZA (2) explains where the trade is treated as being carried on.
     
  • S809EZA (3) sets out the circumstances when a disguised fee arises.
     
  • S809EZA (3)(c) originally advised that a disguised fee may arise “directly” or “indirectly” to an individual. This section was removed in Finance (No2) Act 2015 and the concept of “directly” or “indirectly” was taken away.  S809EZDA and S809EZDB applied a new framework as from 22nd October 2015.
     
  • S809EZA (4) sets out the circumstances where a management fee is regarded as being untaxed for the purposes of subsection 3.
     
  • S809EZA (5) advises that a trade includes a profession or vocation.
     
  • S809EZA (6) defines an investment scheme.
     
  • S809EZA (7) defines a collective investment scheme.
     
  • S809EZB (1) defines a management fee.
     
  • S809EZB (2 to 4) defines an arm’s length return.
     
  • S809EZC (1) explains the meaning of carried interest for the purposes of S809EZB.
     
  • S809EZC (2) explains when a sum arising to an individual does so as a profit related-return.
     
  • S809EZC (3) provides that where sums arise to an individual as a profit-related return, and there was no significant risk that at least a certain amount would not arise, that certain amount is the “minimum return”.
     
  • S809EZC (4) sets out details of how the minimum amount is to be calculated.
     
  • S809EZC (5 to 6) provides when the risk mentioned in subsection 3 is to be assessed.
     
  • S809EZC (7 to 8) set out how sums which are not carried interest are to be treated.
     
  • S809EZD (1 to 2) sets out an additional definition of carried interest for the purposes of S809EZB.
     
  • S809EZD (3) explains how this is applied where the scheme profits and preferred return are calculated on the basis of particular investments.
     
  • S809EZD (4) defines the preferred return.
     
  • S809EZDA (1) - (4) Applies from 22nd October 2015.  Provides that where sums arise to connected persons other than companies in relation to an individual the sum will be treated as arising to the individual.
     
  • S809EZDB (1) - (10) Applies from 22nd October 2015.  Provides that where sums arise to connected companies or unconnected persons in relation to an individual the sum will be treated as arising to the individual.
     
  • S809EZE defines various terms used in the Chapter.
     
  • S809EZF details the anti- avoidance clause relating to the DIMF rules.
     
  • S809EZG (1 to 2) sets out the two scenarios when avoidance of double taxation should be considered.
     
  • S809EZG (3) provides that to avoid a double charge to tax, the individual may claim a consequential adjustment.
     
  • S809EZG (4) provides that an officer of Revenue and Customs must make any consequential adjustments which are just and reasonable.
     
  • S809EZG (5) sets a limit on the consequential adjustment as a result of subsections 1 and 2.
     
  • S809EZG (6) sets out how the double tax relief adjustments may be made.
     
  • S809EZH provides for Regulations to be made to amend the Chapter, to alter the schemes to which the Chapter applies, the persons who are participants, or the sums which constitute carried interest.