Budget 2016: Asset Managers’ Performance Linked Rewards

It was confirmed in the Budget that the draft legislation on the taxation of asset managers’ performance-linked rewards that was published in December 2015 would be brought forward as part of Finance Bill 2016.

The legislation provides that the rewards will be taxable as income unless the underlying funds that they manage hold their investments for a period of time – if, on average, the investments are held for more than 40 months then the rewards will be treated as entirely capital, if they are held for a shorter period, an increasing proportion of the rewards will be treated as income instead.

Different calculation rules will be introduced for the various asset classes, including venture capital and real estate.

On the whole these rules represent a slight relaxation of the original proposals, which stipulated far longer holding periods for most asset classes.