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HMRC internal manual

Offshore Funds Manual

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HM Revenue & Customs
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Definition of an offshore fund: Overview: Arrangements not within the definition of an offshore fund

As the operational rules are intended to apply to interests held in certain types of arrangements that have particular characteristics, and those arrangements may be based anywhere in the world, it is not possible to provide a list of all entity types that do not come within the definition of an offshore fund. The paragraphs below provide a broad overview of the types of arrangements that do not come within the definition: -

Partnerships

Partnerships are specifically excluded from the meaning of an offshore fund at S355(1)(c) TIOPA 2010 by S355 (2) TIOPA 2010.

Limited liability partnerships

Limited liability partnerships (‘LLPs’) incorporated under the Limited Liability Partnerships Act 2000 but that are tax resident outside the UK are excluded from the definition even if they are otherwise treated as being a “body corporate” (S355(3) TIOPA 2010).

This exclusion does not apply to LLPs formed under the law of any other territory - if such an LLP is a body corporate (and opaque for capital gains purposes) and a mutual fund then it will come within the definition of an offshore fund at S355(1)(a) TIOPA 2010.

Arrangements that are not ‘mutual funds’

Any corporate or contractual entity not coming within the definition of a mutual fund at S356 TIOPA 2010 will not be an offshore fund. This would include, for example, foreign equivalents of UK investment trusts or UK Real Estate Investment Trusts (‘UK-REITs’) as those types of arrangements do not offer investors a facility to redeem their interests on request or at intervals, entirely or nearly entirely by reference to the net asset value (‘NAV’) of their proportionate share of the scheme property or an index, and nor are they limited life.

Closed-ended arrangements within the exceptions at S357 TIOPA 2010

Arrangements with fixed share capital or similar, that otherwise would come within the definition of a mutual fund, may still be excluded from the definition of a mutual fund (and therefore an offshore fund) if they come within any of the exceptions at S357 TIOPA 2010. Examples would include arrangements taking corporate form without being limited life or that have limited life but either do not generate income or all income is paid or credited to investors so that it would be chargeable to tax as income. See OFM06000 onwards for further guidance.

Further guidance

Further guidance on particular entity types (such as limited life companies) is provided in this manual at OFM10000 onwards. The legislation at S354-S363 TIOPA 2010 must still be considered where there is any doubt as to whether a particular set of arrangements comes within the definition.