Expanding the IME to include cryptoassets: Simmons response

Update: For the government’s response to the consultation, see IME to expand to include cryptoassets.

Simmons & Simmons has responded to HMRC’s consultation entitled “Expanding the Investment Transactions List for the Investment Management Exemption and other fund tax regimes”. For more details of the consultation, see our article “Expanding the IME to include cryptoassets”.

The scope of the investment manager exemption (IME), and the extent to which it may encompass certain forms of cryptoasset, has been a regular subject of dialogue in recent years. The IME is an important factor in the UK being an attractive jurisdiction from which to manage alternative investment funds. However, the current lack of clarity regarding the treatment of cryptoassets under the IME has caused and is causing investment managers to consider other jurisdictions as a location from which to deploy investment strategies involving cryptoassets, where those jurisdictions may provide greater certainty of treatment for funds and their investors.

Therefore, HMRC’s launch of its consultation is highly welcomed, particularly in an environment where many tax authorities worldwide in jurisdictions where fund managers have traditionally been domiciled are struggling both to:

• accommodate managers who seek to invest in digital assets on behalf of their fund and other clients, and
• provide clarity on how existing tax rules, such as the IME in the UK or similar measures such as the “trading safe harbors” in the US, apply to such activities.

Simmons & Simmons response to the consultation is supportive of the principles and purpose of the consultation to include cryptoassets within the scope of the UK’s IME and we consider the proposed extension would meet a pressing need for many new and established alternative investment fund managers.