Dublin under threat as UK fund managers seek Treasury tax accord on repatriated UK cash

Fund managers are lobbying the UK for favourable tax treatment if they relocate billions of pounds of cash from European countries after Brexit.

The Treasury and a group of asset managers have discussed the repatriation of cash belonging to British investors in the event that the EU changes the regulations of Britain’s investment industry, according to people familiar with the talks.

According to industry estimates, close to $1 trillion is managed by UK-based fund managers for funds based in Ireland or Luxembourg.

One industry person who was close to the discussions said: “[WE HAVE BEEN] talking to UK Treasury about bringing that money back .?.?. it would be relatively easy for the UK to say that [asset managers] who wants to move cash, here’s this expedited model.

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“You could take Dublin and Luxembourg’s lunch. The UK can offer an easy way to switch back with no tax consequences. [The government] could use it in as a threat in negotiations. The Treasury recognises there is an opportunity,” he said.

The Treasury is understood to have no plans to take action at present, and fears that such a move might be costly, provocative to the EU and premature, since there is currently no proposal on the table to change the rules that govern asset management.

A Treasury spokesman said: “The UK is a world leader in asset management and the industry plays a pivotal role in the UK economy.

“The government meets regularly with the asset management industry to understand the challenges it faces, as well as potential opportunities, and has done so long before the EU referendum.”

The talks between asset managers and the Treasury come amid concerns that, after Brexit, British asset managers could face restrictions using so-called delegation, which allows a fund to be domiciled and regulated in one EU country while actively managed and marketed in another.

Over the past three decades, Luxembourg and Dublin have emerged as the EU hubs in which to base funds, while investment management staff are typically located in London, as well as Paris and Frankfurt.

But with Britain leaving the EU, there are growing concerns in some parts of Europe that the rules are not strict enough. The worry is that a large proportion of assets regulated in the bloc would be run from a non-EU country, with asset managers having only a token presence in an EU country.

“If the worst comes to the worst [UK asset managers facing restrictions], there is a huge amount of money sitting in Luxembourg or Ireland funds that doesn’t need to be there,” the industry person said, adding that this would help boost the number of jobs in the country’s custody bank sector at the same time.

But a senior figure in the Irish fund industry dismissed this idea, saying that the impact of potentially losing access to European funds and investors would not be welcomed by most British asset managers.

"[If assets were repatriated] the UK might have gained an increase in the number of British funds, and some jobs, but they will have lost much more on the other side if they lose the delegation piece," he said. -Copyright The Financial Times Limited 2018.