Schedule 19 of the Finance Act 1999 acts as a proxy for the principal stamp duty reserve tax (SDRT) charge and is charged to fund managers on surrenders of units in funds, although investors ultimately bear the cost. The regime is regarded as complex and burdensome, requiring frequent tax calculations and returns to be sent to HMRC. Additionally, because of the way in which the tax operates, its headline rate implies a much greater tax burden than the annual cost actually suffered. This is difficult to explain to investors and gives rise to presentational complications when trying to market UK funds, especially overseas. Since the charge is only applied to UK funds, those who do not wish to pay Schedule 19 SDRT already have the option of investing in funds domiciled offshore. It is for these reasons that Schedule 19 is identified as a major deterrent to domiciling funds in the UK, with a particularly damaging effect on the ability of UK funds to attract non-UK investors.

The abolition of Schedule 19 will be legislated for in the Finance Bill 2014 to take effect in tax year 2014/15.

At present, managers of UK bond funds are required to withhold basic rate tax on interest distributions. This works well in the case of UK residents but creates difficulty when selling funds to foreign residents who are entitled to receive payments without tax being withheld. This puts managers wishing to export UK funds at a competitive disadvantage as it is administratively costly and difficult to separate out UK and non-UK investors.

The government announces that it will develop and consult on proposals to allow such funds to pay interest on a gross basis where they are marketed to foreign investors in a manner that does not give rise to a risk of evasion.

Currently section 363A of the Taxation (International and Other Provisions) Act 2010 (TIOPA 2010) provides that locating management functions of offshore UCITS funds in the UK will not put the fund at risk of being deemed to be UK tax resident. This has been well received as it provides certainty to UK based managers.

The government now plans to develop and consult on proposals to widen the application of section 363A TIOPA to provide greater certainty on the tax residency of non-UCITS foreign domiciled funds. In particular, this will provide comfort to managers who wish to operate offshore funds under the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD).

For more information on the AIFMD, see Practice note, Hot topics: The AIFM Directive.

For foreign domiciled funds that are managed in the UK, provided that the fund is not trading, the fund itself will not be taxable in the UK. However, if such a fund carried out transactions that were held to be trading then it is possible that having a UK manager would cause the fund's trading profits to be taxable in the UK. The investment manager's exemption applies in such cases, and the "white list" of permitted investment transactions in this context provides that the specified transactions will not be taxable in the UK.

UK funds (and offshore funds reporting income to UK residents) also benefit from a parallel "white list" of permitted investment transactions that deems similar transactions not to be trading transactions when carried out by those funds as part of their investment activities.

When the "white list" was set up, the government stated that it intended to keep the list of specified transactions under review. The government announces that it will, therefore, consult on minor changes to the "white list", in particular its application to traded life policy investments (TLPI) and certain forms of carbon credit that are not currently covered.

For more information on the investment manager's exemption, see Practice note, Offshore funds: tax: Investment manager's exemption.

The government confirms that, by the end of spring 2013, two new authorised contractual scheme (ACS) vehicles (also known as tax transparent funds (TTFs)) will be available for fund managers to establish in the UK. These vehicles are the limited partnership and co-ownership schemes. Both schemes will be available for authorisation as UCITS, non-UCITS retail schemes (NURS) or qualified investor schemes (QIS).

These schemes are expected to be attractive to managers looking to pool assets from funds across Europe, amd potentially more widely, using arrangements permitted by the UCITS IV Directive (2009/65/EC) (UCITS IV). In such a structure, a UK ACS would form a "master fund" into which other UCITS funds from across Europe could combine their assets. This will create economies of scale, allow industry to reduce costs and increase returns to investors.

For more information on TTFs, see Practice note, UK implementation of the UCITS IV Directive: Tax transparent funds.

In the chapter of the The UK investment management strategy relating to regulation, the government states that the FSA has agreed to engage actively with industry representatives in relation to the process for authorising funds, including hosting, with HM Treasury, a roundtable to explore improvements that can be made and to enhance understanding on all sides. The aim is to ensure that applications are processed as quickly and efficiently as possible.

The government states that the FSA is currently reviewing the application forms in order to make the application process as smooth as possible and keep to a minimum any further information requests required during consideration of an application.

HM Treasury will consult with a view to making technical changes to the Limited Partnership Act 1907 as it applies to funds, including the possibility of allowing them to elect for legal personality. This has been a major concern, particularly for the private equity and venture capital sectors and will ensure that UK limited partnerships remain an effective and attractive vehicle for the private funds industry.

For general information on the taxation of limited partnerships, see Practice note, Limited partnerships: tax.

In the chapter of the The UK investment management strategy relating to marketing of funds, the government states that it will introduce a marketing strategy to promote the UK as a centre of fund management and domicile. Among other things, it announces that TheCityUK and the Investment Management Association (IMA) will work closely with industry to create a one-stop shop service for fund managers wishing to set up in the UK. They will bring together all relevant service providers to offer a comprehensive package to new fund managers. This might include, for example, a fixed cost consultancy and legal package to support the manager in setting up, and a "concierge" service to help managers access the right parts of the regulator and the wider industry.

The government will address two unintended consequences of previous changes to tax rules for investment trust companies. One change will be made through secondary legislation, the other in the Finance Bill 2013.

HMRC has published a Tax Information and Impact Note (TIIN) on investment trust amendments alongside the 2013 Budget.

For more information on the taxation of investment trusts, see Practice note, Investment trusts: tax.

The government will make changes to address issues in the operation of the Offshore Funds (Tax) Regulations 2009. The Offshore Funds (Tax) (Amendment) Regulations 2013 have been published on legislation.gov.uk. They are being introduced to close an avoidance loophole with effect from 20 March 2013.

Further regulations to help ensure investors in offshore reporting funds are taxed on the correct proportionate share of income will be published in draft form for comment.

HMRC has published a TIIN on amendments to the Offshore Funds (Tax) Regulations 2009 alongside the 2013 Budget.

As announced in December 2012, the government will legislate in the Finance Bill 2013 to allow a UK REIT to treat income from another UK REIT as income of its tax exempt property rental business.

The government is further considering the case for REITs being included within the definition of "institutional investor".

As announced at Budget 2011, the government is undertaking a programme of work to improve areas of legislation that have been subject to repeated attempts at tax avoidance. The Finance Bill 2013 will provide powers to enable secondary legislation to be introduced to reform the taxation of UUTs. The reforms will remove avoidance opportunities while simplifying the rules and reducing administrative burdens for exempt investors.

From January 2014, the bank levy will increase to 0.142% for the full rate and 0.071% for the half rate. The full rate is currently set at 0.130%. Legislation will be introduced in the Finance Bill 2013 to amend the rates.

HMRC has published a TIIN on the bank levy 2014 rate change alongside the 2013 Budget.

For more information on the bank levy, see Practice note, Bank levy.

As announced in the 2012 Autumn Statement, the government will legislate in the Finance Bill 2013 to ensure that, from 1 January 2013, foreign bank levies paid by a foreign banking group trading in the UK cannot be claimed as a deduction against UK corporation tax and income tax. Transitional arrangements will also make clear that a claim to double taxation relief in respect of a foreign bank levy will prevent that foreign bank levy from being deducted against corporation tax and income tax.

As announced on 26 October 2012, the government will introduce legislation in the Finance Bill 2013 to clarify that the coupon on tier 2 debt capital that is already in issue, or yet to be issued, will be deductible for the purposes of the bank computing its profits for corporation tax purposes.

In addition, the government will legislate to clarify that banks' additional tier 1 debt capital instruments already in issue, or yet to be issued, will be similarly deductible for the purposes of a bank computing its profits for corporation tax purposes.

For more information, see Tax legislation tracker: finance: Tax treatment of new capital instruments to accommodate Basel III and Practice note, Hot topics: CRD IV.

Following consultation, regulations have been made so that the tax treatment of new Basel III compliant building society capital instruments "core capital deferred shares" will be the same as equivalent share capital from 1 March 2013.

For more information, see Tax legislation tracker: finance: Tax treatment of new capital instruments to accommodate Basel III.

Following consultation, the government will introduce legislation in the Finance Bill 2014 to provide for HMRC to publish an annual report, from 2015, on the operation of the Code of Practice on Taxation of Banks. This report may include the naming of any bank that HMRC considers not to be complying with the Code. The government will consult on the governance process around determining non-compliance and the nature of the report to be published by HMRC.

The FSA will be publishing its review of regulatory barriers to entry and expansion in UK banking shortly after the 2013 Budget.

As a result of the review, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) will make major changes to the way they deal with new and existing small banks. The authorisation process for becoming a bank will be quicker and easier and there will be a comprehensive series of changes to the capital and liquidity rules to level the playing field for new banks. The changes will make a significant difference to the ease with which challengers can enter the UK banking system.

The Government will investigate options for improving access to credit data on small and medium sized enterprises (SMEs) to make it easier for newer lenders to assess loans to smaller businesses.

The government will introduce legislation in the Finance Bill 2013 to provide greater alignment between the treatment of life insurance policies issued by insurers inside and outside the UK, while ensuring that the rules provide a more appropriate reduction to chargeable event gains.

As previously consulted on, the government will introduce legislation in the Finance Bill 2013 to limit the premiums that can be paid into qualifying policies (QPs) to £3,600 a year from 6 April 2013, with transitional arrangements for policies issued before that date.

HMRC has published a TIIN on life insurance QPs alongside the 2013 Budget.

The government will make an ex gratia payment of £5,000 to those policyholders who bought their Equitable Life With-Profits Annuity before 1 September 1992, and are alive now. A further £5,000 will be available to those policyholders who meet the above criteria and are in receipt of Pension Credit. These one-off payments are in recognition of the resulting pressures this very elderly group face, having not received the income they hoped for from their Equitable Life annuity. Payments will be made in 2014-15 or earlier if possible.

The government will bring payment systems into a competition-focused regulatory regime. It will consult formally on this soon and intends to legislate for the new regime in the Financial Services (Banking Reform) Bill 2012-13 (Banking Reform Bill).

For more information on the Banking Reform Bill, see Practice note, Hot topics: Banking Reform Bill.

The government has secured a commitment from the payment card industry to reduce the time it takes for credit and debit card payments to reach the bank accounts of SMEs by up to three days, by using the Faster Payments System to process payments.