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HMRC internal manual

Offshore Funds Manual

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HM Revenue & Customs
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Non-reporting funds: charge to tax on disposal of an interest: non-resident settlements: attribution rules: example of effect of ‘rebasing’ election

Example showing how a UK resident but non-UK domiciled beneficiary may benefit from a ‘rebasing’ election - paragraph 101 Schedule 7 FA 2008

Example of effect of ‘rebasing’ election - paragraph 101 Schedule 7 FA 2008

A settlement with non-UK resident trustees is settlor interested because the settlor can benefit. The trustees own all the share capital of a non-UK resident company. Neither the trustees nor the company has received any income nor made any chargeable gains. The trustees have made a ‘rebasing’ election under paragraph 126 Schedule 7 FA 2008.

The non-resident company purchased a material interest in an offshore fund in 2000-01. This is disposed of in 2010-11 resulting in an OIG amount of £60,000. The post 5 April 2008 element of that OIG amount is £15,000.

The first capital payments made to beneficiaries were made in 2010-11. They were:

  • £40,000 to a UK resident and domiciled beneficiary
  • £40,000 to a UK resident but non-UK domiciled beneficiary
  • £40,000 to a non-UK resident beneficiary.

There is a matching of £20,000 of each of these capital payments with the 2010-11 OIG amount. Each beneficiary has £20,000 of offshore income gain attributed to them via section 87 TCGA rules. There are no unmatched OIG amounts to carry forward within the non-resident settlement structure.

The UK resident and domiciled beneficiary is chargeable to income tax in 2010-11 on the £20,000 offshore income gain attributed to them.

The UK resident but non-UK domiciled beneficiary (where the remittance basis is used) is only chargeable to income tax on £5,000 (£20,000 x £15,000/£60,000) of the £20,000 offshore income gain attributed to them. That is the post 5 April 2008 element of the £20,000 offshore income gain attributed to them. This is by virtue of paragraph 101 Schedule 7 FA 2008.

The non-UK resident beneficiary is not chargeable to income tax on any of the £20,000 offshore income gain attributed to them.

There are unmatched capital payments of £20,000 to each beneficiary to carry forward at 5 April 2011.