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HMRC internal manual

Offshore Funds Manual

Non-reporting funds: charge to tax on disposal of an interest: non-resident settlements: attribution rules: example of ‘rebasing’ election having no effect

Example showing how a UK resident but non-UK domiciled beneficiary may not benefit from a ‘rebasing’ election - paragraph 101 Schedule 7 FA 2008

Example of ‘rebasing’ election having no effect - paragraph 101 Schedule 7 FA 2008

This example has similar facts as that in OFM15650 with the exception that capital payments are not made to beneficiaries until a year after that in which the OIG amount arises in the offshore trust structure. In such a case there may be no benefits of a ‘rebasing’ election to a non-UK domiciled beneficiary in respect of any offshore income gain attributed to them.

A settlement with non-UK resident trustees is settlor interested because the UK resident and ordinarily resident, but non-domiciled, 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 capital 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 2011-12. They were:

  • £40,000 to a UK resident and domiciled beneficiary
  • £40,000 to a UK resident but non-UK domiciled beneficiary (who was also the settlor)
  • £40,000 to a non-UK resident beneficiary.

In 2010-11 there have been no capital payments in that year, or earlier years, to beneficiaries. So there can be no attribution of the OIG amount to beneficiaries under the section 87 attribution rules in regulation 20.

We then have to consider if there can be an attribution under the transfer of assets rules in regulation 21 for 2010-11. The entire £60,000 OIG amount can be attributed to the settlor as an offshore income gain for that year. The non-UK domiciled settlor is chargeable to income tax in 2010-11 on the £60,000 offshore income gains attributed to them, subject to any remittance basis considerations. The ‘rebasing’ election has no effect on the amount chargeable to income tax as the attribution has not been made via the section 87 attribution rules.

The OIG amount is reduced to Nil (regulation 21(6)). There are no unmatched OIG amounts to carry forward to 2011-12. There is nothing to match with the capital payments made in 2011-12 so the full amount of those payments are unmatched capital payments to carry forward at 5 April 2012.