Finance Bill Tracking Service 2007 | Budget 2007 | Budget Notes

BN47 Investment Managers' Exemption: carbon trading

Who is likely to be affected?

1   UK investment managers that act for non-resident companies and individuals such as offshore collective investment funds.

General description of the measure

2   Regulations will be made by the Treasury to extend the type of business that investment managers can undertake on behalf of non-residents without bringing the latter into the UK tax net, to include trading in carbon emission credits and similar instruments ("carbon trading").

Operative date

3   The measure will have effect on and after 21 days from the date when the Regulations are laid before Parliament. It is intended that the Regulations will be laid on 22 March 2007.

Current law and proposed revisions

4   A non-resident who trades in the UK through a dependent agent is liable to tax (section 6(2) of Income Tax (Trading and Other Income) Act 2005 and section 11 of Income and Corporation Taxes Act 1988). Provided certain tests are met, investment managers acting for non-resident clients can be exempted from being treated as their UK agent by virtue of section 127 of Finance Act (FA) 1995 in the case of income tax, and section 152 of and Schedule 26 to FA 2003 in the case of corporation tax. This is known as the Investment Managers' Exemption. The intention is that simply using a UK investment manager to carry out permitted transactions should not expose a non resident to UK tax, when the non-resident has no other connection with the UK.

5   The transactions that are exempted are defined in the current legislation (section 127(12) of FA 1995 and paragraph 3 (3) of Schedule 26 to FA 2003) and are known as investment transactions. That legislation provides for regulations to be made to designate other transactions as such.

6   Carbon emission credits represent a legal entitlement to emit carbon. As they do not fit within the types of financial instrument currently listed in the definition transactions in them cannot benefit from the exemption, although transactions in derivatives based on them, such as futures and options, can do.

7   These regulations will bring carbon trading within the type of transaction that can benefit from the Investment Managers' Exemption. Although measured in tonnes of carbon they will be distinguished from physical commodities (which remain excluded from the exemption).

Further advice

8   If you have any questions about this change, please contact Mike Hogan on 020 7147 2655 (email: Information about Budget measures is available on the HM Revenue & Customs website at