"It is an open secret in the funds world that if you want to launch a new product you don't base it in the UK, that is for tax reasons,” Richard Saunders, chief executive of the Investment Management Association, said in a statement.

“This is not to minimise or avoid your own taxes, but to avoid complexity and to reduce the risk of your client being exposed to an unexpected and unjustified hit. Research by IMA and KPMG in 2006 and 2007 confirms this,” he said.

His comments come at a time when rival European financial centres such as Luxembourg and Dublin have grabbed a big slice of UCITS funds business. Often complex rules and tax regulations have encouraged fund administrators to register funds in these locations even if they are eventually sold to UK investors.

He recommended that lawmakers should take steps including introducing a tax-exempt regime for UK authorised funds, ensuring that there is legal certainty that the activities of funds will be treated as investment, not trading, for tax purposes; scrap Stamp Duty Reserve Tax on fund units and abolish the 10 per cent limit on single investors in qualified investor schemes.

“Our latest information is that UK-based fund managers run €535 billion ($839.8 billion) in Ireland and Luxembourg alone. If those funds were located in the UK instead, we estimate that the Treasury would get an extra £300 million a year in employment and corporate taxes,” Mr Saunders said.

The IMA has also submitted evidence to the Treasury Select Committee, in the House of Commons, about the committee’s inquiry into offshore financial centres.  The IMA said the UK is losing out as offshore domiciled funds are becoming the preferred choice over UK domiciled funds for regulatory and tax reasons.