Commentary

B5.705 Charge to tax on participants

Business tax
Business tax | Commentary

B5.705 Charge to tax on participants

Business tax | Commentary

Non-reporting funds

B5.705 Charge to tax on participants

The regulations define offshore funds as either reporting funds or non-reporting funds. An offshore fund is a non-reporting fund unless it is a reporting fund to which Part 3 of the regulations applies (see B5.715)1.

If a non-reporting fund which is a transparent fund (see B5.702) has an interest in a reporting fund any excess of reported income treated as made to the non-reporting fund2 is additional income of the participants in the non-reporting fund calculated in proportion to their rights. It is treated as relevant foreign income (see E6.124F, E1.602) of a participant chargeable to income tax, and miscellaneous income of a participant chargeable to corporation tax3.

There is a charge to tax on a participant in a non-reporting fund if there is a disposal of an asset giving rise to an offshore income gain and either Condition A or B is met4. The normal definition of a disposal for capital gains tax purposes applies5.

Condition A is that the asset is an interest in a non-reporting fund at the time of the disposal6.

Condition B is that7:

  1.  

    (a)     the asset is an interest in a reporting fund at the time of the disposal;

  2.  

    (b)     the reporting fund was previously a non-reporting fund which became a reporting fund as a result of an application8;

  3.  

    (c)     the interest was an interest in a non-reporting fund at some time during the period beginning with the day on which consideration was given to acquire the asset or

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