IFM13256 - Offshore Funds: participants in offshore funds: participants within the charge to corporation tax: income and distributions from non-reporting funds: non-transparent funds

Arrangements that are non-transparent for income purposes and that come within the definition of an offshore fund under section s355(1)(a) or (b) TIOPA 2010 will either have corporate form (such as an open-ended investment company) or will be foreign unit trusts. Foreign unit trusts that are not transparent for income purposes are sometimes referred to as ‘Garland’ unit trusts (following the case of Garland v Archer-Shee (15TC693)).

The UK tax treatment of investors for income purposes will depend on the form of the offshore fund, as explained below.

Corporate funds

Where a fund has corporate form, any distributions received will normally be treated as foreign dividends.

Corporate Funds - ‘Bond Funds’

Fund managers should be able to tell UK investors if a fund is a ‘bond fund’. Corporation tax payers are subject to the bond fund rules in Chapter 3 of Part 6 of CTA 2009 if that is the case.

Non-transparent unit trusts

UK investors in foreign unit trusts that are non-transparent for income purposes are taxable on their proportionate share of income (as ascertained after the trustees have met the expenses of administering the trust) when it is allocated to them, regardless of whether the income is paid to them or is accumulated. Unlike the position for transparent unit trusts (see IFM13254), this income is taxable as miscellaneous foreign income (under Chapter 8 of Part 10 CTA 2009). Corporation tax payers are subject to the rules in Chapter 3 of Part 6 of CTA 2009 if the fund is a bond fund.