Beta This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Offshore Funds Manual

Definition of an offshore fund: Transparent entities: Arrangements that are tax transparent for income purposes

Mutual funds that are tax transparent for income purposes but opaque for capital gains purposes are within the definition of an offshore fund (unless closed ended and within the exceptions described at OFM06000 onwards) because, although it is not possible to roll-up income in the fund itself, it would be possible to do so in a lower-tier investment of that fund.

Regulation 29 of The Offshore Funds (Tax) Regulations 2009 provides that, subject to conditions, disposals of interests in arrangements within the definition of an offshore fund that are tax transparent for income purposes but opaque for capital gains purposes (for example, Fonds Commun de Placement (‘FCPs’) and so-called “Baker” foreign unit trusts) will be excluded from offshore income gains treatment even if the fund is a non-reporting fund, provided broadly that the fund does not itself invest more than 5% of its total value in other non-reporting funds (see OFM16500 for full details).

Even where regulation 29 is capable of applying, income transparent funds can still choose to apply for reporting fund status if they wish to because, for example, they wish to exceed the percentage limit, do not wish to monitor it or they consider that being approved as a reporting fund will be beneficial in attracting UK investors.

A transparent fund. to disposals of which, regulation 29 will apply may be referred to, for convenience, as an ‘special category transparent offshore fund’ or ‘special category fund’ (see OFM16500).