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HMRC internal manual

Offshore Funds Manual

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Non-reporting funds: charge to tax on disposal of an interest: non-resident settlements: section 87 (and 87A) TCGA attribution rules: effect of residence and domicile status of beneficiary - regulation 20

Effect of residence / domicile of beneficiary on offshore income gains arising in non-resident settlement structures that are attributed under section 87 (and 87A) TCGA rules - regulation 20

Beneficiary is UK resident and domiciled

Where attributions are made to a beneficiary who is UK resident or ordinarily resident and is domiciled in the UK, then the full amount of the offshore income gain attributed is liable to tax on the beneficiary as income.

Beneficiary is UK resident but non-UK domiciled

Where attributions are made to a beneficiary who is UK resident or ordinarily resident but non-UK domiciled then, under section 87 (and 87A) TCGA rules, the full amount attributed may not be chargeable to income tax for the following reasons:

  • Such an individual will not be chargeable to income tax on offshore income gains attributed to them to the extent that in the matching process:

    • a capital payment received before 6 April 2008 is matched, or
    • an OIG amount for the tax year 2007-08, or earlier, is matched (paragraph 100 Schedule 7 FA 2008).
  • If the trustees have made a ‘rebasing’ election under paragraph 126 Schedule 7 FA 2008 then such an individual will not be chargeable on the pre-6 April 2008 element of the offshore income gain attributed to them (paragraph 101 Schedule 7 FA 2008).
  • If such an individual is a remittance basis user they can have the benefit of the remittance basis via the rules in section 87B TCGA.

The full amount of the offshore income gain attributed to the individual reduces the OIG amount of the non-resident settlement structure that is available to match with future capital payments. That is so even though less than the full amount may be chargeable to income tax on the individual.

Beneficiary is non-UK resident

Offshore income gains can still be attributed to a beneficiary who is not resident or ordinarily resident in the UK using the section 87 TCGA attribution rules. This applies even though they may not be chargeable to tax on such an individual. Any such attribution reduces the OIG amount of the non-resident settlement structure that is available to match with future capital payments.

General guidance on how section 87 TCGA and related provisions work in relation to capital gains is available on the HMRC website in the document “New guidance on Capital Gains Tax changes affecting beneficiaries of Non Resident Settlements” in the material on Non-resident trusts.