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HMRC internal manual

Savings and Investment Manual

HM Revenue & Customs
, see all updates

Collective investment schemes: offshore funds: occasions of charge

Occasions of charge

The information in this manual applies to transactions up to 30 November 2009. The Offshore Funds Manual is currently being updated for the offshore funds regime from 1 December 2009.


A disposal occurs for the purpose of the offshore funds legislation if and when a disposal would occur for the purposes of the taxation of chargeable gains but there are also rules covering death and company reconstructions.

The disposal must be a disposal of a material interest for the purposes of the offshore funds legislation.

Material interest

For the income charge to apply to a UK investor the asset disposed of must constitute a ‘material interest’ in the hands of that UK investor.

A person’s interest in an offshore fund is defined as a ‘material’ one if, at the time he acquired it, he could reasonably expect to be able to realise that interest at some time within the following seven years at a value reasonably approximate to the portion of the market value of the fund’s assets, which the interest represented at that time. The interest may be realised by any form of disposal. (See ICTA88/S759 (2).)

Rights which might enable value to be realised in the manner described above can attach to interests in overseas companies or arrangements that we did not intend to come within the offshore funds legislation. There are, therefore, special provisions to exclude loans made by banks, rights under insurance policies, controlling interests in companies and consortium and buy-out arrangements. (See ICTA88/S759 (5) (6) & (8).)


Where the interest held at death is in a fund which has been a non-qualifying fund at some material time (or is in a UK resident company or collective investment scheme which has been a non-qualifying fund), there is deemed to be a disposal by the taxpayer of that interest at market value at the time of death.

Death is not, however, an occasion of charge in relation to disposals of interests in distributing funds operating equalisation arrangements (SAIM6360).

Company reorganisations and reconstructions

The provisions of TCGA92/S135 and TCGA92/S136 are disapplied in cases where shares in a non-qualifying offshore fund are exchanged (or treated as exchanged) at any time for shares in a distributing fund or for shares in a UK resident company. In these circumstances the exchange is treated as a disposal of shares in the non-qualifying fund for a consideration equal to the market value at the time of exchange.

In the case of a distributing fund operating equalisation arrangements, a disposal occurs for the purposes of the income charge notwithstanding that TCGA92/S127 applies (either directly or by reason of TCGA92/S135) for chargeable gains purposes.

For distributing funds generally, we import the company reconstruction provisions from TCGA92/S135. The consequence of this is that the two companies are treated as the same company, and the exchange of shares is treated as a re-organisation of the company’s share capital.