Funds: Private Equity, Hedge and All Core Structures

Chapter 11

Taxation Principles in Funds

11.1 INTRODUCTION

This chapter will consider taxation in terms of the fund, the investors, investment manager companies and investment manager principals in the UK, the US and the EU generally. This chapter is very much an overview of a subject matter that frankly warrants a separate book (or books). However, understanding the basic issues is helpful and enables further reading around the core issues set out in this chapter.

11.2 TAXATION OF FUNDS

11.2.1 UK

(a) Limited partnerships

A limited partnership structure for a fund is fiscally transparent. Capital gains which arise in the course of the partnership’s business are assessed and taxed to each partner separately in proportion to their interest in the capital of the fund.¹ The profits of the business of the partnership are not treated as the proceeds of a separate entity in respect of income² or corporation tax.³ They are apportioned to each partner in accordance with the partnership agreement and taxed as income in their hands.

(b) AUTs and OEICs

These are treated in similar ways and will be considered together. The investments of an AUT or an OEIC are held by the trustees (for more details about the structure of these funds, see Chapter 4, section 4.11 and Chapter 6, section 6.3.3(c), respectively). Any capital gains arising in the hands of the trustees from the disposal of any of those assets are treated as tax exempt.⁴ If the AUT is an umbrella fund, then each sub-fund is treated as ...