Investment Manager Exemption (IME)

The Investment Manager Exemption (IME) is a long-standing HMRC concession that helps attract international investment in the UK. It allows overseas investors to appoint UK-based investment managers without automatically creating a UK tax liability for the investor.

Without the exemption, there is a risk that investment activities carried out by a UK manager on behalf of a non-resident investor could be treated as giving rise to a taxable presence in the UK. The IME helps prevent this outcome where certain conditions are met. 

The Investment Manager Exemption uses qualifying tests to make sure:

• overseas investors are not charged to UK tax for investment transactions conducted on their behalf; and
• any fees received by a UK resident investment manager for services performed for the non-resident are fully chargeable to UK tax.

The rules are designed to strike a balance between encouraging international investment into UK-managed funds whilst at the same time ensuring that UK-based investment managers remain fully taxable on their earnings. While the overseas investor may benefit from the IME, the fees earned by the UK investment manager are subject to tax in the normal way.

It is important that fund managers and overseas investors review their arrangements to ensure the qualifying tests are met otherwise this could have significant UK tax implications.