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HMRC internal manual

Offshore Funds Manual

Reporting funds: tax treatment of participants in reporting funds: participants chargeable to income tax: other non-transparent funds - Regulation 96

Arrangements that are non-transparent for income purposes and that come within the definition of an offshore fund under section S355(1) TIOPA 2010 (that is, funds that do not take corporate form) will be foreign unit trusts. Foreign unit trusts that are not transparent for income purposes are sometimes referred to as ‘Garland’ unit trusts (following the case of Garland v Archer-Shee (15TC693)).

Non-transparent unit trusts

UK investors in foreign unit trusts that are non-transparent for income purposes are taxable on their proportionate share of income (as ascertained after the trustees have met the expenses of administering the trust) when it is indefeasibly allocated to them, regardless of whether the income is paid to them or accumulated. Unlike the position for transparent unit trusts, that income is taxable as miscellaneous foreign income (under Chapter 8 of Part 5 of ITTOIA 2005) and the tax rates applying will be those applying to such income.

If there is an excess of reported income over the amount allocated (for example if the unit trust has invested in another reporting fund and has itself received reports of income which was not actually distributed to it) then the excess must be treated by the participant in the same way as the allocated income (that is as miscellaneous foreign income (under Chapter 8 of Part 5 of ITTOIA 2005).

Remittance basis users

Where individuals not domiciled in the United Kingdom are taxed on the remittance basis then the normal remittance basis rules will apply to income arising from the reporting fund.

In the case of income that is reported but is not distributed then that income has not been remitted to the UK.