(March 21, 2013) — Investing in the UK is about to become a more profitable practise as the nation’s chancellor announced a reduction in the tax paid by investors in UK-domiciled funds.
In his annual budget speech yesterday, Chancellor George Osborne announced the abolition of stamp duty on shares in companies listed on growth markets, such as the London Stock Exchange’s AIM.
The charge of 0.5% is a levy paid to the government rather than to the company offering the shares.
Under the new proposals, this levy will no longer be paid by investors buying into these companies and should plump up returns made on these stocks.
Daniel Godfrey, CEO of the UK’s Investment Management Association – the trade body for UK asset managers – said: “The abolition of stamp duty on funds in [the] budget will give savers better returns. The UK is already a world class location for asset management and this is a vital step in allowing the UK to compete as a location for funds.”
Godfrey added that the move would attract more assets to the UK, which would help prop up the financial services industry that may lose out duty to the levy cut.
Andrew Williams, investment principal at Mercer, said: “Where these charges are borne by the funds themselves, it is the underlying investors who suffer a detrimental impact in the performance of their assets. Recently, a number of European countries, most notably Ireland and Luxembourg, have seen a huge growth in asset managers moving administration functions to take advantage of the more favourable tax regimes. By bringing the UK more in line with these countries through the abolition of Schedule 19 [in which the Stamp Duty clause is found], the UK can start to compete for this business on an equal footing.”
There has been a trend by institutional investors in the UK to pull out of their domestic market, for diversification and return-seeking reasons. This gap has not been filled by a flood of foreign investors.
By removing what some see as a double taxation, many in the industry hope to pull more assets into the UK capital markets.
Simon Thompson, chief operating officer at Legal & General Investment Management, said: “We believe that the Schedule 19 charge has been a barrier to the UK’s competitiveness when deciding on the domicile of investment funds. Its abolition should help to create more of a level playing field when comparing the UK to other domiciles such as Luxembourg and Dublin as it removes a perceived layer of double taxation which has been a barrier to attracting foreign investment to UK funds.”