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HMRC internal manual

Offshore Funds Manual

Transitional rules: reporting fund previously a non-qualifying fund - Schedule 1 para (5)

The deemed disposal provisions under regulation 48 that apply when a non-reporting fund converts to a reporting fund (see OFM19000) are modified by para (5) of Schedule 1 where a fund that was a non-distributing fund prior to 1 December 2009 becomes a reporting fund from 1 December 2009 (because its period of account commences on that date and it successfully applies for reporting fund status).

References to a non-reporting fund are substituted with references to ‘the existing fund’. This transitional rule is necessary because a fund cannot be a ‘non-reporting fund’ before the regulations take effect on 1 December 2009, and so without this provision investors in a fund that was a non-distributing fund (under the old rules) and had a period of account ending on 30 November 2009, but subsequently became a reporting fund with effect from 1 December 2009, would be unable to make a deemed disposal election under regulation 48.

UK investors will therefore be able to make a deemed disposal and realise an offshore income gain on any accrued gains to that date, with any further gains on a subsequent disposal from then on being subject to tax on chargeable gains (provided the fund has maintained reporting fund status from 1 December 2009 to the date of disposal).