Funds and Partnerships services (US connected)

In Tax

Our US and UK professionals advise on tax issues for individuals within partnerships, such as private equity, hedge funds and US law firms.

What EY can do for you

In recent years, there have been many changes in the UK and US tax rules, impacting individuals treated as partners. Such changes have especially impacted those connected to the fund and asset management industry, as well as those working in more traditional partnerships, such as law firms.

For individuals connected to the fund and asset management industry, the implementation of the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS) are very notable changes. Both regimes have increased significantly the obligations on financial institutions (FIs).

These reporting requirements have added another layer of complexity and administation for funds, including the proper determination of the FATCA and CRS status of entities and participants from different jurisdictions.

For more traditional partnerships, the US has introduced the qualified business income deduction, while the UK has seen even more pronounced changes with complex rules in respect to mixed member partnerships, salaried member rules and most recently, changes to ‘basis periods.’

All these changes have placed an increased burden on both individual participants and their respective partnerships. Ensuring tax compliance, as well as providing all participants and investors with reliable and useful tax reporting information has become more complex — but also necessary.

  • Fund managers or investors

    Individuals working in the fund management industry can come up against a number of tax issues, many of which can be extremely complex to understand and manage.

    It is more important than ever for individuals who have tax obligations in more than one jurisdiction to have an internationally experienced advisor reviewing their position. This is to help mitigate potential double taxation, whilst supporting tax compliance checks and regulatory filing obligations in all relevant countries to avoid penalties.  

  • Fund and alternative asset managers

    With the increasing scrutiny of the fund and alternative asset management industry, managers are faced with a constantly changing landscape of tax and regulatory regimes. In recent years, the UK has challenged current legal and structural arrangements by changing its taxation of management fees and carried-interest returns, whilst the US has seen similar changes under the US Tax Cuts and Jobs Act.

    The organisational structure of an investment manager’s business remains important, with regard to protecting the taxation treatment of non-domiciled UK residents. However, when the business, its owners, and its employees are subject to both the US and UK tax systems, it is often less about complex tax structuring, and more about making sure that the tax treatment across both jurisdictions is aligned and optimised. Avoiding double taxation and minimising negative cash flow is a priority. Our team of professionals will facilitate this simultaneous analysis as a standard practice. 

  • Investment funds

    Investment fund structures have a huge task in both navigating and complying with complex tax rules, and in satisfying investor tax and reporting requirements. The relationship with each investor is of the utmost importance. Furthermore, they will require accurate and timely information in order to preserve this relationship. Whether the issues stem from the need of US investors, or non-US investors reporting US-sourced income, the investor will, more often than not, look to the Fund for assistance and guidance. We have deep industry knowledge required to help their investors on both sides of the Atlantic.

    If you have US investors, it is important to structure the Fund and its investments correctly from the outset, so that they do not fall within the scope of US anti-deferral legislation and are able to meet their extensive informational reporting requirements. There is a complex administration required when completing annual reports, and when allocating fund income, losses, gains and deductions between members.

    In addition, UK investors will desire non-UK-based funds to register for reporting fund status in the UK and will expect UK-equivalent income reporting, in order to comply with their reporting requirements.

    Without proper planning and assessment of the US and UK tax exposures, it is not uncommon for penal tax regimes to apply in one or both jurisdictions.

    The failure to meet with the ever-burdensome tax compliance obligations with both the Internal Revenue Service (IRS) and HM Revenue & Customs (HMRC) can also lead to significant civil, and in some cases, criminal penalties.

    Our professionals work with our clients to identify and oversee all of the above obligations to limit risk and maximise tax efficiency. Our awareness of the tax rules — applying in both the UK and the US — allows us to help our clients recognise that appropriate structures and procedures are in place, whilst we can additionally help relieve many of the compliance burdens. 

  • Traditional partnerships including law firms

    Those working in traditional partnerships continue to have many complex issues to contend with. 

    For US tax purposes, allocations of partnership income, losses and deductions need to comply with specific principles known as "substantial economic effect". Where partnerships have US participants this means that specialist US tax and accounting advice is required. On the other hand, for US partnerships, the need to provide information to members with respect to the new ‘qualified business income deduction’ has increased their administrative burden.

    The UK also has many complex rules in place, including those related to mixed members, disguised self-employment income, salaried members and most recently, changes to basis periods. US law firm partners are also know to have many specific tax complexities, especially in relation to complying with the UK remittance rules.

    Our professionals have experience in all of the above issues, and can  advise to confirm that the tax affairs of both partners and partnerships are efficiently structured. We are also there to assist with the US and UK tax compliance requirements of both partners and their partnerships.

EY consulting services include:

  • Advice on transitioning from employee to partner with cash flow forecasts
  • Professional knowledge of UK disguised investment management fees (DIMF), and US- and UK-carried interest and co-investment structures
  • US and UK tax-efficient structuring and tax elections for fund managers
  • Experience in professional partnerships, with a specific focus on US law firm partners who have a presence in the UK
  • Tax-efficient remittance planning, and complex foreign tax credit interaction between the US and UK
  • Knowledge in professional partnerships, including a specific focus on US law firms
  • US and UK presence, structuring, and partner allocations

Compliance services include all areas of UK tax, and US federal income tax and information reporting, including, but not limited to:

  • UK personal tax return reporting for partners
  • Form 1040: US federal income tax return for US residents
  • Form 1040NR: US federal income tax return for nonresidents with partnership interests and in receipt of certain non-US-sourced income
  • FinCEN114: Foreign back account reporting
  • IRS forms W8 and W9 series, and related FATCA reporting
  • Form 1065, 8865 and K-1 reporting for US partnerships and funds
  • Section 83b and Section 431 elections

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