The UK's Investment Association (IA) has called for "significant improvements to the UK direct and indirect tax regime" in its submission to HM Treasury's review of the UK funds regime in light of Brexit.

The trade body said this was one of three key priorities in terms of government regulatory action, and listed the other two as "innovation in the UK fund architecture", and "the need for a fully energised approach to branding and promotion".

The government has been seeking input into its review of the funds tax regime, which it announced in the Budget last year. Stakeholders had until 20 April 2021 to submit their views on tax and regulation specifically.

In its proposals for the UK's approach to fund taxation, the IA said there was a "need for greater simplicity and certainty", and set out its considerations for whether the UK should move to a fully tax-exempt regime for funds.

The IA stated: "On the one hand, a move to a fully tax-exempt regime could lead to unintended consequences such as the potential loss of access to some double tax treaties.

"On the other, if the ambition is for the UK to act as a compelling global fund hub, supporting a wide range of investor needs internationally, then this points to the need for a significant departure from the current approach that is largely driven by UK investor taxation."

It noted that ultimately, a "successful" fund tax regime needs to be "simple to operate and understand while offering certainty of outcome".

The trade body has also identified an "urgent need" for a competitive UK VAT regime for existing and new UK-domiciled funds, including the long-term asset fund (LTAF) and the onshore professional fund (OPF), and said this could be achieved by applying a zero rate of UK VAT to the management of all UK funds, thereby ensuring they are "placed on the same footing as equivalent funds domiciled offshore".

Chris Cummings (pictured), chief executive of the IA, said: "Brexit is an important opportunity for the UK to define an innovative and responsive policy framework for investment funds.

"This will ensure that we continue to attract world-class firms to serve British and international customers, while also supporting the UK's ambition to become the global centre for responsible and sustainable investment."

In its submission to Treasury's review, the IA set out the prospects for wider reform and said that the UK "requires a full shopfront of funds to meet the needs of UK and international investors".

It said there was an opportunity to launch "innovative" new vehicles, rather than systematic re-domiciliation of existing funds, and has also proposed that the UK strengthen its middle and back office functions capabilities by locating these in the regions, rather than in London or the South East.

First published by our sister title Investment Week