Reporting funds: constant NAV funds - Regulations 118 to 124
A “constant NAV fund” is an offshore fund whose net asset value (expressed in the currency in which units are issued) does not fluctuate by more than an insignificant amount throughout the fund’s existence, as a result of the nature of the fund’s assets, and the frequency with which the fund distributes its income (regulation 118).
The reporting fund rules are modified in a number of respects for constant NAV funds, as follows -
Application for reporting fund status - regulation 120
On making an application for reporting fund status, a constant NAV fund need not provide all of the items required by regulation 53 (see OFM21300). Instead, together with its application it is only required to provide -
- a statement of the first period of account for which it is proposed that the fund should be treated as a constant NAV fund for the purposes of the regulations,
- a statement that the fund is, or will be, a constant NAV fund at the beginning of that first period of account, and
- an undertaking to notify HMRC if the fund ceases to be a constant NAV fund.
Unless HMRC rejects an application (because, for example, it is incomplete), a fund becomes a “constant NAV fund” on whichever is the later of the first day of the first period of account for which it is proposed the fund should be a constant NAV fund, or the day on which the fund is established (the latter may be later where there is a delay in setting up an offshore fund, and the application was made in respect of a prospective constant NAV fund).
Once a fund has been accepted as a constant NAV fund, it does not need to comply with the requirements of Chapters 4 to 9 of the regulations (which deal with the preparation of accounts, the computation of reportable income, transactions not treated as trading, reports to participants (i.e. investors), the tax treatment of participants, and the provision of information to HMRC). The fund will then continue to be treated as a constant NAV fund until it notifies HMRC that it has ceased to be a constant NAV fund. However if, after a fund has been accepted as a constant NAV fund, the value of the fund’s assets (expressed in the currency in which units in the fund are issued) rises by more than an insignificant amount and the fund has not notified HMRC that it has ceased to be a constant NAV fund then a participant who subsequently disposes of an interest in the fund and who makes a chargeable gain on the disposal is treated as making an offshore income gain (regulation 123).