Introduction: overview of the 2009 regime for offshore funds: Overview of treatment of UK investors
Investors in reporting funds
UK investors in a reporting fund will be provided with a report (by one of several permitted methods) for each period of account showing sums actually distributed per unit of interest held, as well as any excess forming the balance of its ‘reportable income’ per unit of interest held in the fund at the end of the reporting period (see the guidance at OFM26000 onwards for further details).
UK investors must make a return of their income to include both the actual distributions received, as well as the ‘reported income’ (i.e. their proportionate share of the fund’s reportable income in excess of the sums distributed). They will be liable to income or corporation tax as appropriate on the total of those sums.
In most cases, providing the fund in question has been a reporting fund for the entire period that an investor has held their interest, then, on any subsequent disposal of that interest, the investor will be subject to tax on any capital gain (or loss) arising. There are some exceptions - see, for example, OFM02500 for an overview of transitional arrangements where a reporting fund was a ‘non-qualifying’ fund under the previous offshore funds regime.
There is a list of funds that come within the definition of an offshore fund and have successfully applied for reporting fund status on HMRC’s website. The list (PDF 21KB) is updated on a monthly basis.
Investors in non-reporting funds
UK investors in non-reporting funds remain chargeable to income or corporation tax on any distributions the fund actually makes to them. Alternatively, if the fund is transparent for income purposes then the investor will be chargeable to tax on income arising on the underlying investments. There are also rules relating to transparent funds with interests in reporting funds, to ensure that investors in the top layer fund are chargeable to tax on their proportionate share of the underlying fund’s reportable income - see OFM13000 for further details.
On disposal of an interest in a non-reporting fund, UK investors will be subject to tax on any gains arising as if those gains were income - that is, on the ‘offshore income gain’ (‘OIG’). There are detailed rules relating to the calculation of OIGs and to their effect on capital gains computations - see OFM17000 and OFM18000 onwards for details.