HEDGE funds and other British-domiciled funds are looking at relocating to Ireland following the introduction of new legislation in Britain which states that income from the Republic will no longer be treated as income earned domestically.

The tax anomaly was removed in April because it discriminated against an EU member state and will make Ireland a significantly more attractive location for such companies to do business.

Senior banking and tax sources expect the move to have a similar effect to previous proposals by the British Treasury which resulted in corporations such as Shire announcing plans to become tax domiciled in Ireland.

A banking source said hedge funds in particular could be attracted to Ireland because salary, office occupancy and tax rates are all below those in the UK. In addition, many of their clients, as well as their senior staff, are non-domiciled residents and will therefore benefit from no longer having to pay British tax on money earned here.

"Investment funds, businesses and other operations they've invested in" will look to relocate here, said Ted McGrath, a tax director in KPMG. "It's certainly helpful. I'm not sure it's necessarily enough to be a huge wave. Another reason it'll be attractive to move here is that Ireland is a natural home for those kind of investments. Recent changes will make Ireland a very good home for UK investors. It will make it even better for us."

McGrath also said plans to extend the notional credit scheme for UK funds to those outside Britain will increase interest in Ireland. "That does make Ireland an attractive home for funds selling into the UK," he said.

Deloitte has said the move will put investors in foreign companies in a similar position to investors in UK companies, removing a distinction that may be discriminatory under EU law.

The UK is in a consultation process regarding how it treats its funds for tax purposes.