UK Rules on Disguised Investment Management Fees | KPMG | QM
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UK Rules on Disguised Investment Management Fees and Carried Interest

UK Rules on Disguised Investment Management Fees

Various changes to tax rules in the UK over the last three years are set to impact the investment fund community, and particularly the private equity sector.


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The changes will most affect fund executives who sit behind Channel Island fund structures. It is important that the local market is alert to the changes and considers the implications for certain structures. A quick run through of the main changes is as follows:


  • Disguised Investment Management Fee (DIMF) rules work to ensure management fees are charged to income tax since 6 April 2015;
  • Base cost shift planning has been removed from carry arrangements since 8 July 2015;
  • Carried interest may also be taxed at income tax rates, depending on a fund’s holding period / investment strategy, since 6 April 2016;
  • Changes to how UK non-domiciled individuals are taxed, including removal of remittance basis under the 15 out of 20 year test, from 6 April 2017.


The rules work together to cover the main types of reward a PE executive can receive from a fund:


  • Management fees charged to income tax under the DIMF rules;
  • If performance-linked fees are not charged to income tax, the carried interest rules will apply CGT on the full amount of the economic gain to the executives;
  • UK-based executives will review current structures and consider their options;
  • Certain advantages still exist, in particular for non-dom executives based in the UK.


Please get in touch with your usual KPMG contact to discuss these changes in more detail.

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