Offshore funds - change of status

By Tolley

The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Offshore funds - change of status
  • Fund ceasing to be a reporting fund
  • Non-reporting fund becoming a reporting fund
  • Distributor fund not becoming a reporting fund

An outline of the regime applying to offshore funds, including a description of the various types of fund, is discussed in the Offshore funds guidance note. You are advised to read that guidance note first. It also explains what is meant by ‘reporting’, ‘non-reporting’ and ‘distributing’ funds.

This guidance note discusses the tax position for a UK resident individual investor where an offshore fund changes its status, so that it ceases to be a reporting fund and becomes a non-reporting fund, or vice versa. It also explains what happens if a distributing fund fails to become a reporting fund.

The taxation of offshore funds is very complex. This note is only an outline of the topic, and you may need specialist advice. In particular, there are further complexities where one offshore fund invests in another, and where trusts are involved.

For further reading see Simon’s Taxes Division B5.7 (subscription sensitive).

Fund ceasing to be a reporting fund

A fund may cease to be a reporting fund because the fund itself chooses to change its status, or because HMRC has withdrawn reporting status following one or more breaches of the rules.

SI 2009/3001, regs 108–116

The Offshore funds - opaque funds guidance note explains that an investor in a non-reporting fund is subject to income tax, not CGT, on disposal. Note that this penal provision does not normally apply to transparent funds, even if they are non-reporting, see the Offshore funds - transparent funds guidance note.

If there were no relieving provisions, an investor might hold an interest in a particular fund for many years, only for that fund not to qualify for reporting fund status for a particular period, or periods, just before the investor wished to

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