IFM37262 - Charging Provisions: Definition of arising: Sums arising before 22 October 2015

Sums arising before 22 October 2015

TCGA92/S103KG

ITA07/S809EZA(3)(c)

The disguised investment management fees (DIMF) legislation was amended as from 22 October 2015 with regards to the definition of “arising”. There was no definition of “arising” within the legislation prior to 22 October 2015. Sums arising after 8 July 2015 but before 22 October 2015 were said to arise “directly or indirectly” to an individual (ITA07/S809EZA(3)(c)) (IFM36351).

Consequently, the interposition of a separate entity between the fund manager and the right to carried interest to prevent or delay a charge arising is ineffective.

Escrow arrangements

A sum of carried interest paid into a genuine commercial escrow arrangement will not necessarily arise to the fund manager at that point. Provided the fund manager cannot access, control or otherwise direct the application of the sum held in escrow (IFM37266), it will not “arise” to them until it is released and they can direct its application. The sum cannot be said to “arise” while it is held in such an arrangement.

While this may delay a charge arising under TCGA92/S103KA, it will not defer a gain accruing to a fund manager under Statement of Practice D12 at the point of disposal as would usually be the case (IFM37266). This gain however will subsequently be superseded by any gain arising under TCGA92/S103KA.