Non-domiciled investment managers considerations

Financial Services Tax

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Non-domiciled individuals living in the UK are subject to specialist rules. [link to non-dom pages] These rules have complex interactions with the treatment of remuneration from private equity structures, including management fees, carried interest, and investment returns from co-investment.

The high-level position for a non-domiciled, remittance basis taxpayer is that they can exclude foreign source income and gains from UK taxation, provided they do not remit the funds to the UK.

However, for a non-domiciled investment manager, the rules can treat amounts as UK-sourced due to the manager working in the UK, even if the fund and underlying investments are overseas.

Management Fee

As the management fee is a return for services, the full management fee will be taxable in the UK. The UK fully taxes any trade partly carried out in the UK.

Amounts arising under Disguised investment management fees [link to DIMF] are treated as arising from a separate source, carried on in the individual’s name.

DIMF amounts are deemed to arise from a UK source. However, the tax charge is limited to UK services. This will require an apportionment, similar to the carried interest below, for individuals who treat some of their DIMF trade as foreign.

As DIMF is deemed a UK source, individuals who are not UK residents but performing services in the UK could potentially be within the scope of DIMF. However, individuals resident in another country may be able to rely on a treaty exemption to exclude these amounts from UK taxation. 

Carried Interest

Generally, if the individual providing the investment management services is a UK resident, the carried interest will be treated as a UK source.

However, there are some possibilities for an investment manager to treat the carry as foreign-sourced and claim the remittance basis of taxation.

To the extent that the investment manager is providing services outside of the UK, they would be able to treat a portion of their carried interest as “foreign” sourced. In determining how much of the carried interest relates to the UK and how much relates to overseas, it is necessary to apportion the carried interest between UK and foreign duties. The most common method would be to apportion the carry based on work days over the fund’s life (or from the date they started working for the fund). However, this may not always be the most appropriate method. There are no fixed rules on how the carried interest must be apportioned, and an alternative approach may give a more accurate result.

What about income-based carry

With income-based carry, there is much more limited relief. Relief would only be available if the individual was non-resident for at least five years before they arrived in the UK. The relief would only be available for the first five years of UK residence and only apply to the pre-arrival services.

Carried interest held in trusts

Historically it was common for non-domiciled individuals to hold their carried interest in a trust structure. Using a trust allowed them to keep the carry entirely outside the UK tax net. However, this is no longer possible since the changes introduced to the taxation of carried interest in 2015.

A UK resident investment manager will be taxable on the carried interest (whilst they may be able to exclude any amount relating to foreign duties). This can create a ‘dry’ tax charge on the amount arising to the trust.

The gains arising to the trust are excluded from the usual rules that can attribute gains within an offshore trust to the settlor/beneficiary, so there is no immediate double tax. HMRC allows a distribution from the trust to pay the tax. However, this structure can create problems if other income or gains are accumulated within the trust.

The taxation of trust for non—domiciled individuals is highly complex and it is essential any non-resident holding carried interest through a trust seeks specialist advice. 


The co-investment amounts are treated as investment returns. Any returns arising from foreign funds/investments are not treated as a UK source (even when the manager is working in the UK).

As such, there are still planning opportunities for non-domiciled investment managers with their co-investment.


Any non-domiciled individual providing investment management services in the UK should seek professional advice. The taxation of their remuneration is potentially very complex, and they must take professional advice to ensure everything is taxed correctly. 

There are important considerations they will need to consider in terms of record keeping, account structuring, and method of holding to ensure they meet their UK obligations in the most efficient manner.