On an initial reading, there is a lot to get excited about in HMRC's second stage consultation on the tax treatment of asset holding companies in alternative fund structures.

The subject of the consultation is the companies established by the managers of private equity, venture capital, credit and similar funds to sit underneath the transparent fund vehicles and hold the assets. 

The regime envisaged in the consultation - no tax on capital gains, no tax on dividends, deductibility for results dependent interest, no withholding tax, no stamp duty, predictable transfer pricing, treaty qualification - sounds extremely attractive. VAT is acknowledged to be an issue, but that is to be covered in a parallel consultation. AHCs will pay "no more tax than is commensurate with their intermediate role in the fund structure".

The regime would apply in the context of widely held fund structures and so apply to most, but not all, structures that UK fund managers might establish. Ambitiously, it would apply across asset classes, with UK real estate being the only real exception (and changes to the REIT regime are consulted on in that context).

On another reading, however, the consultation creates plenty of reason to doubt whether HMRC will commit to the simplicity that will be needed to incentivise asset managers to abandon Ireland and Luxembourg and use UK vehicles.

For example, the consultation envisages a complex system of rollover relief for capital gains (rather than a simple exemption) on the basis that the regime should not be used to artificially defer tax on capital gains, and a complicated system to trace the income or capital nature of the company's transactions through to ensure matching treatment in the hands of UK investors.

On a technical level it is possible to sympathise with these concerns, but in practice, other than fund professionals themselves, UK taxable investors do not tend to be a very significant part of the investor base for most alternative investment funds, and I hope that HMRC will be able to separate a simple AHC regime from any more complicated rules that may be thought necessary to deal with the position of UK taxable investors in it.

In my post on the original consultation, I noted how important it is for advisers to be able to say "yes," and not "yes, but..." when asked about this new regime. Now that it is (slowly) taking shape, I hope HMRC will be able to shake off its natural caution and deliver a regime that does this.