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HMRC internal manual

Offshore Funds Manual

From
HM Revenue & Customs
Updated
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Investors in non-reporting funds: disposals of interests: overview - regulations 32 & 33

Basic Rule

Where a participant has an interest in a non-reporting offshore fund (or in some circumstances in a reporting fund - see OFM27000 onwards) then there is a disposal of an asset for the purposes of the regulations if there would be a disposal of the asset for the purposes of tax on capital gains (under the Taxation of Chargeable Gains Act 1992 - ‘TCGA’).

Except where the regulations provide otherwise (see OFM16550 concerning ‘protected rights’) the rules in TCGA also apply to determine the identity of disposals with acquisitions of rights within the same class.

Detailed guidance on disposals for TCGA purposes can be found in the Capital Gains Manual, on the HMRC website.

There are exceptions to the basic rule as summarised below.

Exceptions to basic rule - departures from rules in TCGA

  • Death of participant - see OFM14200 
  • Exchange of securities (section 135 TCGA) - see OFM14300
  • Scheme of reconstruction (Section 136 TCGA) - see OFM14500 
  • Exchange of interests of different classes (section 127 TCGA) - see OFM14600 

Offshore funds that are not companies

For the purposes of determining whether there has been a disposal or not, TCGA applies to interests in offshore funds that are not companies in the same way as it applies to interests in companies. This is because TCGA applies to interests in unit trusts and to other non-corporate offshore funds in the same way as it does to shares in companies (sections 99 and 103A TCGA).

See OFM07100 for further guidance on the rules relating to offshore funds that do not take corporate or unit trust form that were introduced in Finance Act 2009 by the insertion of Section 103A into TCGA.

Some arrangements that come within the meaning of an offshore fund will not give rise to an offshore income gain when an investor disposes of an interest in the arrangements if tax is chargeable under other provisions of the Taxes Acts. This would include, for example, sums charged to tax under the loan relationships rules. Chapter 3 of The Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001) contains regulations setting out exceptions from the charge to an offshore income gain (see OFM16000 onwards).