IFM14264 - Taxation of investment trusts: Interests in offshore non-reporting funds treated as investments in reporting funds

An investment trust may have an interest in one or more non-reporting funds (‘NRF’). Where that is the case and all of the conditions set out in regulation 42(2) of SI 2011/2999 apply then the investment trust may carry out its own calculation of the reportable income for NRF and take this into account in calculating its own income.

It is then able to treat its interest in NRF as an interest in a reporting fund for the purposes of its calculation of income. When an investment trust disposes of its interest in such a NRF any gain on disposal is not subject to tax as an offshore income gain (regulation 43).

If the conditions in regulation 42(2) would not be met for the whole period during which an investment trust owns an interest in a NRF but the company reasonably expects that they will from a particular date to be determined, then the investment trust may make a deemed disposal and reacquisition (regulation 44 SI 2011/2999). The reacquisition will be from a ‘deemed start date’ (that is, the date the investment trust chooses to make the deemed disposal and reacquisition) and this must be notified to HMRC by making an appropriate entry in the company’s tax return for the period in which the deemed start date falls. Any gain on the deemed disposal will be an offshore income gain in accordance with regulation 17 of SI 2009/3001 (the Offshore Funds (Tax) Regulations).