Since its launch in July 2013, the UK Tax Transparent Fund (TTF), also known as the Authorised Contractual Scheme (ACS) has continued to gain momentum and is now at the forefront of a product design evolution. Unlike the relatively unsuccessful UK Pension Fund Pooling Vehicle (PFPV) a material number of ACS have now been launched, with many more in the pipeline. Interest in the ACS is so high as the vehicle presents not only opportunities for investment structure simplification and cost efficiencies but also for real tax savings benefits for tax exempt vehicles such as pension funds and charities.
What is an ACS?
The UK Treasury introduced the ACS on 1 July 2013, as a vehicle which, from a policy perspective, is designed to “ensure that the UK can compete as a fund domicile for tax transparent funds” and “facilitate the setting up of UK pooled ‘master fund’ investment vehicles”. The ACS facilitates a ‘master-feeder’ fund structure, which is used to pool assets belonging to a number of different funds/ entities in a single asset pool, so achieving critical mass and economies of scale.
Importantly, many tax authorities ‘look-through’ tax transparent vehicles, applying withholding tax rates as if the investor had received income directly. So, investors pooling assets into an ACS should not in most instances suffer additional withholding tax on their investment income as a result. This is particularly important for pension funds or life companies with pension assets who wish to access their beneficial withholding tax treaty rates (e.g. 0% withholding tax on US dividends).
Insurance companies, Pension funds and asset managers are particularly interested in TTFs. Below we consider why, as well as the current direction of growth for these vehicles.