LONDON (Bloomberg) — The UK should cut taxes for hedge funds and asset managers to make Britain the "domicile of choice" amid competition from countries such as Luxembourg and Ireland, according to a government-commissioned report.

The UK is losing about £350 million ($585 million) a year in revenue as funds choose to locate in countries with lower taxes, a task force headed by Robert Jenkins, chairman of the Investment Management Association, said in the report.

"The taxation of funds in the UK was at one time seen as a low priority for the tax authorities, and this left the door open for competing fund-domicile centres to grow and prosper", according to the report. "Creating an attractive onshore fund regime for alternative vehicles such as hedge funds would be a substantial opportunity for the UK."

Chancellor of the Exchequer Alistair Darling commissioned Jenkins, a former chairman and chief executive officer of F&C Asset Management Plc, to study how the UK can retain its competitiveness as a global centre for fund management.

Asset management firms, including hedge funds and private equity funds, oversaw about £3.4 trillion in the UK last year and generated about £14 billion of revenue.

Ireland and Luxembourg are attracting funds at a faster rate than the UK, costing the Britain about £1 million in employment and taxes for every £1 billion of assets under management, according to the report.