Offshore funds, life policies and pensions

Offshore funds

Section 355 of the Taxation (International and Other Provisions) Act 2010 (TIOPA 2010) defines an offshore fund as a mutual fund which is either:

(a) a company resident outside the UK

(b) a unit trust scheme whose trustees are non-resident, or

(c) other arrangements taking effect under foreign law, which create rights in the nature of co-ownership

Before 1984, such collective investment vehicles enabled investors within the charge to UK tax to accumulate income in an offshore fund free of tax and, when the investment was realised, to be subject only to tax on capital gains rather than having to pay tax on income. In contrast, a combination of regulatory and tax rules meant that UK investors had to pay tax annually on income from UK funds.

From 1984 onwards, however, the UK has introduced various anti-avoidance measures to limit the tax advantages that accrue to UK-resident individuals who invest in offshore funds. The current regime has been in force since 1 December 2009. The purpose of both the original and the replacement offshore funds tax regimes is to charge gains on...