The Disguised Investment Management Fees (DIMF) are broad anti-avoidance rules designed to prevent management fees from arising for the benefit of an investment manager in a way that has not been subject to UK tax.
When does DIMF apply
DIMF applies where:
The individual provided investment management services directly or indirectly to the fund.
Examples of investment management services would include:
Seeking funds for scheme purposes from participants or potential participants
Researching potential investments for the scheme
Acquiring, managing, or disposing of property on behalf of the scheme
Acting for the purposes of the scheme with a view to assisting a body in which the scheme has made an investment to raise funds.
The definition of investment management services is deliberately defined very broadly by the legislation. Any activity which supports or facilities the management of any investment scheme would be considered the provision of investment management services.
Under the arrangements, a “management fee” arises for the individual.
This also captures situations when the fee arises to someone connected to the individual (such as a spouse or trust), or to someone unconnected and specific enjoyment conditions are met.
The enjoyment conditions are widely written and designed to catch situations when the amount will benefit the individual (or someone in connection with them) in the future.
Some (or all) of the management fee arising to the individual is not brought into account in calculating the profit of a trade or treated as employment income of the individual.
There are specific carve-outs from the rules for carried interest and co-investment.
How is DIMF taxed
When these rules apply the amount treated as a Disguised Investment Management Fee arising to the individual is treated as a separate trade carried out by the individual and is subject to income tax and National Insurance.
Any amounts arising under DIMF are deemed to be UK source, this is considered further in the non-domiciled section. [Link to non-dom section]