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HMRC internal manual

Investment Funds Manual

Offshore Funds: investors in non-reporting funds: exceptions to the charge to tax: general

The purpose of the offshore fund regime is to ensure that income cannot be rolled up free of tax with any subsequent gain on disposal being taxed only as a capital gain. Both the 1984 and 2009 rules achieve this by charging any gains on disposals of interests to tax as income (‘offshore income gains’, or ‘OIGs’) in arrangements that do not distribute, or report income.

However, where it is not possible to roll-up income in such a way that it would not be taxed as income, there is no need to apply the offshore funds rules. This may be the case where a tax charge is imposed by other parts of the Tax Acts on income arising from an investment in arrangements that may come within the definition of an offshore fund. There are other circumstances where it would not be desirable to charge a disposal of an interest in an offshore fund to tax as an OIG. The Offshore Funds (Tax) Regulations 2009 therefore set out specifically when a charge to tax on an OIG will not arise.

The following pages provide guidance on the exceptions in the regulations.