IFM13382 - Offshore Funds: participants in offshore funds: participants within the charge to income tax: disposals: non-reporting funds: overview
Regulations 32 & 33 of SI 2009/3001 - basic rule
Where a participant disposes of an interest in a non-reporting offshore fund (or in some circumstances in a reporting fund - see IFM13380 onwards) then there is a disposal of an asset for the purposes of the regulations if there would be a disposal of the asset for the purposes of tax on capital gains (under the Taxation of Chargeable Gains Act 1992 - ‘TCGA’).
Except where the regulations provide otherwise (see IFM13430 concerning ‘protected rights’) the rules in TCGA also apply to determine the identity of disposals with acquisitions of rights within the same class.
Detailed guidance on disposals and on share identification rules when making a disposal for TCGA purposes can be found in the Capital Gains Manual. See CG51550+ for disposals chargeable to capital gains tax. There are exceptions to the basic rule as summarised below.
Exceptions to basic rule - departures from rules in TCGA
- Death of participant – see IFM13383
- Exchange of securities (section 135 TCGA) - see IFM13386
- Scheme of reconstruction (Section 136 TCGA) - see IFM13386
- Exchange of interests of different classes (section 127 TCGA) - see IFM13388
Offshore funds that are not companies
For the purposes of determining whether there has been a disposal or not, TCGA applies to interests in offshore funds that are not companies in the same way as it applies to interests in companies. This is because TCGA applies to interests in unit trusts and to other non-corporate offshore funds in the same way as it does to shares in companies (sections 99 and 103D TCGA).
Some arrangements that come within the meaning of an offshore fund will not give rise to an offshore income gain when an investor disposes of an interest in the arrangements if tax is chargeable under other provisions of the Taxes Acts. Chapter 3 of The Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001) contains regulations setting out exceptions from the charge to an offshore income gain (see IFM13450 onwards).
Remittance basis
Where an individual is not domiciled in the UK and the remittance basis applies to the individual for a tax year (see the Residence, Domicile and Remittance Basis Manual at RDRM3000 onwards) then the amount of any offshore income gain remitted in that tax year is treated as relevant foreign income of the individual (Chapter 2 Part 8 ITTOIA 2005).
In the case where the individual is the beneficiary of a non-resident settlement and an offshore income gain arises to the trustees of the settlement then different rules apply – see IFM13420 and following pages.