UK tax implications of overseas entity classification and distributions from overseas entities
Produced in partnership with Michael McGowan
UK tax implications of overseas entity classification and distributions from overseas entities

The following Tax practice note produced in partnership with Michael McGowan provides comprehensive and up to date legal information covering:

  • UK tax implications of overseas entity classification and distributions from overseas entities
  • Taxation of overseas entities and their members
  • Transparent overseas entities
  • Opaque overseas entities
  • Taxation of distributions from opaque overseas entities
  • Taxation of individuals on overseas distributions
  • Taxation of companies on overseas distributions
  • Nature of return from overseas entities
  • CIR v Reid's Trustees
  • Rae v Lazard Investment
  • More...

UK tax implications of overseas entity classification and distributions from overseas entities

An overseas entity may be characterised for UK tax purposes as transparent or opaque. This Practice Note explains how such classification will affect how the entity is taxed, and how the members of the entity are taxed.

UK legislation provides little guidance on whether an overseas entity is to be treated as transparent or opaque for UK tax purposes. For an explanation of the relevant case law and HMRC’s views on entity classification, see Practice Note: Entity classification case law and HMRC's interpretation, and Classifying overseas entities for UK tax purposes—checklist

Taxation of overseas entities and their members

Transparent overseas entities

If an overseas entity is treated as transparent, UK resident members (shareholders, beneficiaries, partners etc) will be subject to tax as profits or gains arise in the entity.

This means that, from a direct tax perspective, transparent entities generally provide a tax neutral vehicle for members, as no UK corporation tax (or income tax or capital gains tax) is charged on the entity itself.

In the UK, for example, there are specific provisions that deal with the taxation of partnerships (see: Partnerships—overview) and trusts.

For the purposes of the annual tax on enveloped dwellings (ATED) there are specific definitions of the entities to which the tax applies, but it is still necessary to determine whether an entity is a

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