Discretionary Fund Management and VAT

Where your client has opted to have their investments looked after by one or more Discretionary Fund Managers (DFMs), the DFM will charge a fee.

Where your client invests in an investment bond issued by Canada Life International Assurance (Ireland) DAC (CLIAI), VAT does not arise. This is because CLIAI is the legal owner of the assets being managed by the DFM and, as a company based in Ireland, CLIAI is the entity which must account for VAT.

The Irish Revenue Commissioners have confirmed in writing to us that the management of funds within an international investment bond issued by an Irish resident life company qualifies for a VAT exemption (under paragraph 1(g)(ii) of the Irish VAT Act). This applies as long as the assets that are being managed constitute a pooled fund portfolio bond and not a highly personalised bond.

Where assets within the bond are managed by a DFM, as the contract is between us, as legal owner, and the DFM there is no VAT payable on the DFM’s services, even if the DFM is a UK company.
So, not only does the bond have the usual tax advantage of gross roll-up but, thanks to our Dublin location, it is also free of VAT on DFM fees.


This can make a substantial difference over time. Take an investment of £500,000, growing at 4% a year net of fund charges, and assume the DFM charge is 1% a year, taken at the end of each year. With 20% VAT added, which would apply to a portfolio held directly or a bond held in a jurisdiction where VAT is payable on DFM services, this would be equivalent to a charge of 1.2%. The effect of this over the years can be seen in the table below.

briefing note 12


briefing note 12


Dublin as a Jurisdiction

Recommending clients to take out a bond with a Dublin‑based provider has many advantages. Since Ireland is in the EU, it is covered by European law and has a strict regulatory and legal environment. We are authorised by the Central Bank of Ireland and must adhere to stringent requirements.
Dublin also benefits from a strong financial infrastructure. Since the International Financial Services Centre was set up in 1987, over 500 international companies have obtained a licence to trade there, leading to the development of highly-skilled support services.
Policyholders who are UK residents at the time of application may be eligible for the Financial Services Compensation Scheme (FSCS), which will cover up to 100% of permitted claims with no maximum, should we become unable to meet our liabilities.

Important Information

The above examples are for illustrative purposes only. They assume a growth rate of 4% each year after any product or investment charges. All figures are rounded to the nearest pound. Please note that the value of an investment bond can fall as well as rise and your clients could get back less than they invest.
This briefing note has been prepared for professional advisers’ use only. This document is based on our current understanding and interpretation of current legislation in the UK and Ireland and HMRC and Irish Revenue Commissioners’ practice, which may change at any time. We recommend that advisers and investors take their own professional tax advice.

For more information regarding this,please speak to your account manager in the first instance or contact us on +44 (0) 1624 820200.

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Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

Canada Life International Limited and CLI Institutional Limited are Isle of Man registered companies authorised and regulated by the Isle of Man Financial Services Authority.

Canada Life International Assurance (Ireland) DAC is authorised and regulated by the Central Bank of Ireland.

Stonehaven UK Limited and MGM Advantage Life Limited, trading as Canada Life, are subsidiaries of The Canada Life Group (U.K.) Limited. Stonehaven UK Ltd is authorised and regulated by the Financial Conduct Authority. MGM Advantage Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority.