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HMRC internal manual

Offshore Funds Manual

From
HM Revenue & Customs
Updated
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Transitional rules: existing distributing fund: no application for distributing or reporting funds status - Schedule 1 para (4)

If a distributing fund does not become a reporting fund immediately following the end of the last period of account for which it was approved as a distributing fund then UK investors would, without any further provision, be charged to tax on an offshore income gain when they subsequently disposed of their interest in the fund.

Paragraph (4) of Schedule 1 provides for UK investors to make a deemed disposal election to be treated as disposing of an interest in a distributing fund at the end of the fund’s last period of account for which it was approved as a distributing fund, and acquiring an interest in a non-reporting fund at the beginning of the fund’s first period of account for which it is not a distributing fund, for chargeable gains purposes.

A deemed disposal will be treated as made for a consideration equal to the net asset value of the investor’s interest in the fund at the deemed disposal date, and any gain or loss will come into charge at that date. The deemed acquisition will be treated as made for consideration equal to the deemed disposal proceeds.

If the investor is chargeable to income tax, the election must be made by being included in a return made for the tax year which includes the deemed disposal date. If the investor is chargeable to corporation tax, the election must be made by being included in the company tax return for the accounting period which includes the deemed disposal date.