IFM36150 - Overview: Summary of the rules

Summary of the rules

Detailed summary of the disguised investment management fees (DIMF) rules

The disguised investment management fees (DIMF) legislation is intended to ensure that sums paid for managing an investment scheme (and which are not calculated by reference to the performance of the underlying investments) are charged to income tax where they arise to individuals.

Where an individual receives a disguised fee from an investment scheme, the individual is treated as carrying on a deemed trade (IFM36200). The disguised fees are considered to be profits of that deemed trade chargeable to income tax.

To establish the territorial location (IFM36220) of the deemed trade, it is necessary to consider the location of the investment management services performed by the individual that gave rise to the fee.

The DIMF legislation sets out in detail the circumstances in which a disguised fee (IFM36300) has arisen. Broadly speaking there are four conditions to meet for an amount to be a disguised fee:

  • provision of investment management services (IFM36310)
  • involvement of a partnership (IFM36345) (Only applies to sums arising up to 5 April 2016, not thereafter)
  • management fees arise to the individual (IFM36316)
  • the management fee is untaxed to any extent (IFM36325)

Certain sums are not considered to be disguised fees. For example sums that are not management fees are not amounts of disguised fee. It follows that such sums would not be included as profits of the deemed trade for DIMF purposes.

Examples of sums which are not management fees include:

  • Amounts that do not arise from or in respect of an investment scheme
  • Amounts that are the repayment of capital by the individual or an arm’s length return on that capital.
  • Co-investments (IFM36400)
  • Carried interest (IFM36500)

The legislation contains an anti-avoidance rule (IFM36600) to ensure that any steps taken or arrangements made to avoid the DIMF charge would not be effective.

The legislation explains that where a charge arises under the DIMF rules and other sections of the Taxes Acts that relief for double taxation may be available via consequential adjustments. A claim must be made for a consequential adjustment (IFM36700) under one of two provisions (ITA07/S809EZG(1) or ITA07/S809EZG(2)). A valid claim is subject to a limit calculated depending on how the double tax charge has arisen and under which of the provisions the adjustment is claimed.

Sums arising that are subject to the DIMF rules should be returned on a separate self employment page within the self assessment return. Further specific details of how the return should be completed (IFM36800) are explained within this guidance.