IFM36131 - Overview: Background: Background

Background

The problems addressed by the disguised investment management fees (DIMF) rules

Fees that individuals receive for investment services provided based on the funds under management (referred to as ‘investment management fees’ in this guidance) were not covered by the Memorandum of Understanding agreed between the British Venture Capital Association (BVCA) and the Inland Revenue (a predecessor department to HM Revenue & Customs).

The DIMF rules were introduced to counter planning which sought to avoid an income tax charge on some or all investment management fees received by an individual.

The DIMF rules ensure that investment management fees are still correctly charged to income tax even where arrangements are put in place to attempt to disguise what is, in substance, an investment management fee.

The rules apply irrespective of how a sum is described or if the legal form of the fee is not that of a payment for services. For example, amounts described as ‘partnership profit shares’ or ‘advances in anticipation of expected future profit shares’ could still be subject to the DIMF legislation. 

The rules also apply when an individual has the power to enjoy a sum, irrespective of if they have personally received it (IFM36330).

It should be noted that the DIMF rules are not intended to introduce a different or more onerous basis for taxing fund managers than applies to individuals who receive similar benefits but who work in other industries. An example of this would be a share scheme designed to incentivise the workforce of a firm, linked to the performance of the firm or wider group, as opposed to the performance of investment funds managed by that firm or group.