IFM12446 | Offshore Funds: Overview of the offshore fund rules: overview of the treatment of UK investors

Investors in reporting funds

UK investors in a reporting fund must be provided with a report (by one of several permitted methods) for each period of account showing sums actually distributed to them for each unit of interest held. The report will also show details of any undistributed excess forming the balance of its ‘reportable income’ for each unit of interest held in the fund at the end of the reporting period (see the guidance at IFM12600 onwards for further details).

UK investors must make a return of their reported income to include both the actual distributions received and undistributed income (i.e. their proportionate share of the income in excess of the sums distributed). They will be liable to income or corporation tax as appropriate on the total income.

In most cases, providing the fund in question has been a reporting fund for the entire period throughout which an investor has held their interest then, on any subsequent disposal of that interest, the investor will be subject to tax on any capital gain (or loss) arising. There are some exceptions - see, for example, IFM12150 for an overview of transitional arrangements where a reporting fund was a ‘non-qualifying’ fund under the previous offshore funds regime.

There is a list of reporting funds on gov.uk. The list is updated monthly.

Investors in non-reporting funds

UK investors in non-reporting funds are chargeable to income or corporation tax on any distributions the fund actually makes to them. On disposal of an interest in a non-reporting fund, UK investors will be subject to tax on any gains arising as if those gains were income - that is, on the ‘offshore income gain’ (‘OIG’). There are detailed rules relating to the calculation of OIGs and to their effect on capital gains computations - see IFM13500 and IFM13570 onwards for details.

If the non- reporting fund is transparent for income purposes then the investor will be chargeable to tax on income as it arises on the underlying investments.