Income Tax (Trading and Other Income) Act 2005 section 863I

Allocation of profit to the AIFM firm

Section 863I sets out how a partner in an Alternative Investment Fund Manager (AIFM) partnership can allocate certain restricted profits back to the firm, and how income tax is then collected on those allocated profits at the additional rate.

• A partner in an AIFM firm who has "relevant restricted profit" — being deferred variable remuneration or upfront remuneration paid in instruments with a retention period of at least six months — may allocate all or part of that profit to the AIFM firm itself
• The allocated profit is removed from the partner's taxable share; the AIFM firm is then treated as though it were a partner in itself and becomes liable for income tax on the allocated profit at the additional rate for the tax year in which the period of account ends
• The variable remuneration must have been awarded under arrangements consistent with the AIFMD remuneration guidelines, and where the firm qualifies as an AIFM firm only because it acts as a delegate of an AIFM manager, the rules apply only to partners classified as "identified staff"
• HMRC has power to make regulations modifying income tax provisions as they apply to the AIFM firm, covering areas such as reporting, tax collection, appeals, administration and penalties