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Introduction

The reward paid to many investment fund managers comprises two elements – a management fee and a performance fee. Legislation¹ applies which is intended to counteract planning devices which would otherwise result in some or all of the management fees based on funds under management avoiding an income tax charge. This is known as the disguised investment management fees (or DIMF) rules.

The provisions apply to 'disguised fees' from an 'investment scheme' (ie a collective investment scheme (see D8.101) or an investment trust (see D7.332)²).

In detail, the provisions apply where an individual at any time performs, or is to perform, 'investment management services' (see below) directly or indirectly for an investment scheme under any arrangements and under those arrangements a management fee (see below) arises to that individual from the scheme (or is treated as doing so, see below), some or all of which is untaxed (ie not charged on the individual for any tax year as employment income under ITEPA 2003 or brought into account in calculating the profits of their