Darling to modernise tax rules on investment trusts
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Alistair Darling, the chancellor of the exchequer, last week presented the final Budget ahead of the general election in May. Among the changes to stamp duty and Isa limits, Darling outlined several moves specific to the fund management industry.
The government will table an amendment to British real estate investment trusts (Reits), allowing them to issue optional stock dividends as income, giving them greater flexibility. It also wants to modernise the tax rules on investment trusts, and will issue a consultation document on this in the summer.
Ian Sayers, the director general of the Association of Investment Companies (AIC) says the changes are timely as the rules have been in place since 1965. “We believe the reform of these rules will provide more flexibility for member companies and reduced costs for consumers,” he said in a statement. (article continues below)
New legislation may also apply to venture capital trusts (VCTs). Sayers says removing the restrictions on where VCTs can invest would make it easier for small businesses to access capital, giving them support.
The Treasury will also consult the industry about the tax rules on authorised investment funds investing more than 20% in offshore funds, potentially levelling the playing field for British and offshore funds.
On the British economy, Darling said it has contracted 6% over the course of the recession. Growth has begun to return to the major world economies, he said, but “there is nothing pre-ordained about continued recovery”.
Darling predicted economic growth of 1-1.25% for this year, but revised down his forecast for next year to 3%-3.5%, in line with the Bank of England.
Meanwhile, the chancellor predicted that government borrowing this year will be £176 billion, £11 billion lower than expected.
However, critics say the chancellor’s forecasts may be overly-optimistic, with the huge borrowing figures likely to concern ratings agencies and holders of sterling assets.
Meanwhile, the Debt Management Office (DMO) released data last week showing that, at £187 billion, gilt issuance in 2010-11 will be lower than the £227 billion in 2009-10. However, the DMO says this is still an “extraordinarily high” figure.
This level of issuance will cause the gilt market to double in size to more than £1 trillion by 2012, with the increased supply likely to lead to more difficult market conditions, the DMO says.
