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HMRC internal manual

Offshore Funds Manual

From
HM Revenue & Customs
Updated
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Investors in non-reporting funds: exceptions to the charge to tax: charitable companies & charitable trusts - Regulation 31

Disposals of interests in non-reporting offshore funds held by charitable companies (as defined in section 506 ICTA) or charitable trusts (as defined in section 519 ITA) are exempt from any charge to corporation tax or income tax in respect of an offshore income gain provided the gain is ‘applicable and applied for charitable purposes’ (regulation 31 / section 535 of ITA 2007).

If interests in non-reporting offshore funds held by charitable companies or charitable trusts cease to be subject to charitable trusts (note that property held by charitable companies is subject to a trust arrangement), and an offshore income gain would arise on accrued gains on a disposal at that time, then the trustees are treated as if they had disposed of and immediately reacquired that property for a consideration equal to its market value. An offshore income gain accruing on the disposal arising under this paragraph is treated as an offshore income gain not accruing to a charity, and is subject to corporation tax or income tax accordingly.

Property will ‘cease to be subject to charitable trusts’ when a charity loses its charitable status, for example if the charity is a ‘time charity’, i.e. an arrangement such as that where assets are held on charitable trusts under the terms of a will and the income applied for charitable purposes until such time as a minor reaches a particular age; when the assets are passed to the ultimate beneficiary chargeable gains, or here an offshore income gain, would arise on the transfer of the assets.