U.K. to remove ETF stamp tax

Terry Flanagan

The UK government will remove certain taxes on exchange-traded funds to encourage listings as assets in the global ETF/ETP industry reached a new record at the end of November.

The government said in its Autumn Statement: “From April 2014 the government will remove the stamp duty and Stamp Duty Reserve Tax (SDRT) charge on purchases of shares in ETFs that would currently apply if an ETF were domiciled in the UK.”

A UK-based ETF based pays stamp duty of 0.5% on purchases in the fund, while funds based in other European countries such as Ireland or Luxembourg do not have such atax.

Sean Randall, head of stamp taxes at KPMG in the UK, said in a statement: “The abolition of stamp duty on ETFs is great news for the UK investment management industry and should invigorate the UK market in ETFs. It means that the UK can now be included on the short list of countries for ETF providers seeking to set up new platforms.”

Julie Patterson, director of regulatory affairs, investment funds and retail, at The Investment Management Association, said in a statement that the announcement is an important step in a series of significant changes made by the government over recent months to make the UK a more attractive location for investment funds to be based. “For every extra £1bn of new funds domiciling in the UK, an additional £700,000 could be generated in UK tax revenues, as well as contributing to the economic growth of this country by creating jobs around the UK,” she added.

The UK government’s move comes as assets in the global ETF/ETP industry reached a new record of $2.4 trillion at the end of November, according to preliminary findings from ETFGI’s November 2013 Global ETF and ETP industry insights report.

Assets rose due to a of $17bn in net inflows and positive market performance, although net inflows fell from September and October.

Rising levels of uncertainty as to when and how the Federal Reserve will taper its QE scheme has contributed to the weaker inflows into ETFs/ETPs in November,” Deborah Fuhr, managing partner at ETFGI said in the report.

In November equity ETFs/ETPs had largest net inflows of $18.2bn, followed by fixed income with $1.1bn. The largest net outflows of $1.7bn were from commodities. Equities have also had the largest inflows of $213.5bn the first 11 months of this year.

North American/US equity gathered the largest net inflows of $127.4bn so far this year. Developed Asia Pacific/Japan was second with developed Europe in third place at $24.7bn. In contrast, emerging market equity ETFs/ETPs have had net outflows of $9.8bn so far this year.

Year to date to end of November, global ETF/ETP assets have increased by 21% due to positive market performance and net inflows of $220.6bn, the same net inflows inflows at this time in 2012.

BlackRock’s iShares had the largest net inflows of $57.3bn this year, followed by Vanguard with $55.7bn and WisdomTree in third with $13.6bn.

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