In the 2015 Summer Budget the Chancellor announced a consultation on the tax treatment of payments made to investment managers. It was perceived that some investment managers were attempting to artificially reclassify earnings from trade as investment activity meaning that earnings were taxed under CGT rules rather than income tax rules.
The consultation closed on 30 September 2015 and it has been announced that legislation will be introduced in Finance Bill 2016 so that performance awards will always be taxed as income unless the underlying fund undertakes long term investment activity.
In the consultation document, a number of legislative regimes were proposed, all of which were subject to a degree of criticism in the ways that they attempted to define “long term investment activity”. The Government has yet to publish its responses to the consultation and it will be of interest to see whether the approach adopted will address the criticisms in full or simply pursue a “least worst” approach to the issue.