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Disguised Fees

Introduction

ITA07/S809EZA(3)

Where a disguised fee arises to an individual from an investment scheme (IFM36230), or schemes, the disguised investment management fees (DIMF) rules ensure that it is recognised as trading profit and charged to income tax in the hands of the individual. It is therefore necessary to be able to identify if a disguised fee has arisen to an individual.

Has a disguised fee arisen?

For a fee to be a ‘disguised fee� there are three conditions that must be met:

• Condition 1 (IFM36310): »Ê¹ÚÌåÓýapp individual must perform investment management services in respect of an investment scheme (in the past, present or future)
• Condition 2 (IFM36316): »Ê¹ÚÌåÓýappre must be a management fee that arises to the individual from an investment scheme
• Condition 3 (IFM36325): »Ê¹ÚÌåÓýapp management fee arising must be untaxed or only partly taxed

Conditions prior to 6 April 2016

»Ê¹ÚÌåÓýappre have been amendments to the DIMF rules since their introduction in Finance Act 2015. 

Care should be taken for sums arising between 6 April 2015 and 6 April 2016 as the conditions required for a fee to be a ‘disguised fee� were different during this period.

»Ê¹ÚÌåÓýappre were two main differences to the conditions:

• »Ê¹ÚÌåÓýappre had to be a partnership involved in the arrangements (Only applied to sums arising from 6 April 2015 to 5 April 2016, not thereafter) (IFM36345)
• »Ê¹ÚÌåÓýapp requirements for Condition 2 (IFM36316) were slightly different prior to 22 October 2015 (IFM36351), as from 22 October 2015, there is legislation (ITA07/S809EZDA and ITA07/S809EZDB) which defines when a management fee arises to other persons or connected companies. Prior to 22 October 2015 a management fee had to arise ‘directlyâ€� or ‘indirectlyâ€� to an individual.