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HMRC internal manual

Offshore Funds Manual

Investors in non-reporting funds: computation of offshore income gains: the basic gain - Regulation 39

Where an offshore income gain falls to be charged on the disposal of an interest in an offshore fund, it will be equal to the ‘basic gain’. The basic gain is an amount equal to the amount which would be the gain on that disposal for the purposes of TCGA 1992 but, in the case of a participant chargeable to corporation tax, without any indexation allowance.

It can be seen from this that an offshore income gain is essentially equal to the increase in value of the investor’s holding over the period it was held, with no provision for reducing that gain by deduction of indexation. This is because the charge to tax on an offshore income gain is a charge on income, although it is calculated in accordance with the rules in TCGA 1992 with relevant modifications.

TCGA92/S37(1) would exclude any sums that have been charged to tax as income from being taken into account in the computation of the ‘basic gain’. So, for example, if it was possible that an entity could come within the controlled foreign companies rules and also within the definition of an offshore fund then any sums charged to tax as income under the CFC rules would be excluded from the computation of the basic gain. Further guidance on the CFC rules can be found in the International Manual (‘INTM’) at

Note that the computation of the basic gain is subject in all cases to the following regulations —

(a) regulation 34 (provisions applicable on death) - see OFM14200;

(b) regulation 35 (application of section 135 of TCGA 1992) - see OFM14400;

(c) regulation 36 (application of section 136 of TCGA 1992) - see OFM14500;

(d) regulation 37 (exchange of interests of different classes - see OFM14600;

(e) regulation 40 (earlier disposal to which the no gain/no loss basis applies); - see OFM17300;

(f) regulation 41 (modifications of TCGA 1992) - see OFM17400;

(g) regulation 42 (losses) - see OFM17500;

(h) regulation 43 (special rules for certain existing holdings) - see OFM17600.