Offshore trusts—offshore income gains (OIGs)

The following Private Client practice note provides comprehensive and up to date legal information covering:

  • Offshore trusts—offshore income gains (OIGs)
  • Primary rule
  • Transitional reliefs under the primary rule
  • Charge to tax
  • Interaction of OIGs with TCGA 1992, Sch 4C
  • Secondary rule
  • OIGs realised in an underlying company
  • Changes in 2017 and 2018

Offshore trusts—offshore income gains (OIGs)

Offshore income gains (OIGs) are gains realised on the disposal of interests in offshore funds which are either:

  1. non-distributor offshore funds, or (after 1st December 2009)

  2. non-reporting offshore funds

See Taxation of offshore funds—overview for an introduction to offshore funds and the various anti-avoidance measures that the UK has introduced with the aim of limiting the tax advantages that could accrue to individuals who invest in offshore funds. A key feature of the offshore fund regime is that capital gains are taxed as income. However, the offshore gain remains a capital gain for trust law purposes.

The term 'disposal' includes the redemption of an interest in a non-reporting fund; a distribution from the fund; and death, takeover and reconstructions. Broadly, disposal has the same meaning as it has for capital gains tax (CGT) and gains are computed on the same basis even though taxed as income. Therefore, the inter-spouse no gain/no loss exemption applies to transfers of offshore non-reporting funds between spouses or civil partners. However, there is no tax-free uplift for CGT purposes on the death of an individual or person with a qualifying interest in possession in the offshore fund.

The taxation of capital payments made by offshore trustees to a UK-resident beneficiary is governed by a specific hierarchy of rules. The basic rule is that a distribution of capital is

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