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The Offshore Funds (Tax) Regulations 2009

Type Statutory-Instrument

Publication 2009-11-12

Last updated 2025-03-19

State In force

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Made: 12th November 2009

Coming into force: 1st December 2009

The Treasury make the following Regulations in exercise of the powers conferred by sections 41(1) and 42 of the Finance Act 2008 .

In accordance with section 42A(2)(c) of that Act , a draft of this instrument was laid before the House of Commons and approved by a resolution of that House.

PART 1 — INTRODUCTION

Preliminary provisions

Citation, commencement and effect

1

(1) These Regulations may be cited as the Offshore Funds (Tax) Regulations 2009 and shall come into force on 1st December 2009.

(2) These Regulations have effect—

(a) for the purposes of income tax—

(i) for the tax year 2009-10 and subsequent tax years, and

(ii) for distributions made on or after 1st December 2009;

(b) for the purposes of corporation tax—

(i) on income, for accounting periods ending on or after 1st December 2009 and for distributions made on or after that date, and

(ii) on chargeable gains, in relation to disposals made on or after 1st December 2009; and

(3) Paragraph (2) is subject to Schedule 1 to these Regulations (transitional provisions and savings).

Structure of these Regulations

2

The structure of these Regulations is as follows—

this Part contains introductory provisions;

Part 2 deals with the treatment of participants in non-reporting funds;

Part 3 deals with reporting funds and the treatment of participants in reporting funds;

Part 3A deals with annual payments to non-resident participants;

Part 4 makes consequential amendments to primary legislation.

General provisions

Definition of “offshore fund”

3

(1) In these Regulations “offshore fund” has the meaning given by section 40A(2) of FA 2008 (read with the provisions of the relevant group of sections).

(2) Paragraph (1) does not apply to the use of the words “offshore fund” in the expression “material interest in an offshore fund”.

Classification of offshore funds

4

(1) Offshore funds consist of—

(a) non-reporting funds (see Part 2 of these Regulations), and

(b) reporting funds (see Part 3 of these Regulations).

(2) In a period of account an offshore fund is a non-reporting fund unless it is a fund to which Part 3 of these Regulations applies ....

Treatment of umbrella arrangements and of funds comprising more than one class of interest

Treatment of umbrella arrangements

5

In these Regulations, in relation to an offshore fund constituted by a part of umbrella arrangements (within the meaning of section 40C of FA 2008)—

(a) a reference to the assets of an offshore fund is to such of the assets of the umbrella arrangements as under the arrangements form part of the separate pool to which that part of the umbrella arrangements relates;

(b) a reference to the income of an offshore fund is to the income arising from those assets; and

(c) a reference to a participant in an offshore fund is to a person for the time being owning an interest in that separate pool.

Treatment of funds comprising more than one class of interest

6

In these Regulations, in relation to an offshore fund constituted by a class of interest in the main arrangements (within the meaning of section 40D of FA 2008)—

(a) a reference to the assets of an offshore fund is to the assets of the main arrangements;

(b) a reference to the income of an offshore fund is to such of the income of the main fund as is attributable to interests of that class under the arrangements constituting the main arrangements; and

Interpretation

Meaning of “participant”

7

In these Regulations references to a participant in a fund are to be read in accordance with section 40A(5) of FA 2008.

Meaning of “interest” (of a participant in an offshore fund)

8

(1) For the purposes of these Regulations the interest of a participant in an offshore fund is the investment held by a participant taking part in arrangements (or arrangements constituting a fund) to which the relevant group of sections applies.

(2) Paragraph (1) does not apply to the use of the word “interest” in the expression “material interest in an offshore fund”.

Meaning of “guaranteed return fund”

9

(1) For the purposes of these Regulations an offshore fund is a guaranteed return fund if conditions A to C are met.

(2) Condition A is that the return on the shares or other interests in the fund is defined by reference to an index.

(3) Condition B is that the assets of the fund which are held to produce the return on the shares or other interests concerned cannot give rise to a return which, if it arose directly to an individual resident in the United Kingdom, would be chargeable to income tax.

(4) Condition C is that it is reasonable to assume that the main purpose, or one of the main purposes, of the arrangements constituting the offshore fund is or was the production for participants of a return that equates, in substance, to the return on an investment of money at interest.

Meaning of “market value”

10

(1) For the purposes of these Regulations the market value of any asset is to be determined in like manner as it would be determined for the purposes of TCGA 1992.

(2) But, in the case of an interest in an offshore fund for which there are separate published buying and selling prices, section 272(5) of that Act (meaning of “market value” in relation to rights of unit holders in a unit trust scheme) shall apply with any necessary modifications for determining the market value of the interest for the purposes of these Regulations.

Meaning of “transparent fund”

11

For the purposes of these Regulations a fund is a “transparent fund” if, in the case of holders of interests in the fund who are individuals resident in the United Kingdom, any sums which form part of the income of the fund are of such a nature that those holders—

(a) are chargeable to tax under a provision specified in section 830(2) of ITTOIA 2005 in respect of such of those sums as are referable to their interests, or

(b) if any of that income is derived from assets within the United Kingdom, would be so chargeable had the assets been outside the United Kingdom.

General interpretation

12

In these Regulations—

“HMRC” means Her Majesty's Revenue and Customs;

“period of account”, in relation to an offshore fund, means any period for which accounts of the offshore fund are drawn up;

“proposed prospectus” includes—any document supplementing or amending the proposed prospectus, andany document fulfilling the same function as a proposed prospectus;

“prospectus” includes—any document supplementing or amending the prospectus, andany document fulfilling the same function as a prospectus;

“regulated market” means—a UK regulated market within the meaning given by Article 2.1(13A) of Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments,an EU regulated market within the meaning given by Article 2.1(13B) of that Regulation, and a Gibraltar regulated market within the meaning given by Article 26(11)(b)(i) of that Regulation;

the “relevant group of sections” means sections 40A to 42A of FA 2008 ;

“tax year”—in relation to income tax, has the meaning given by section 4(2) of ITA 2007, andin relation to capital gains tax, has the meaning given by section 288(1ZA) of TCGA 1992 ;

“tribunal” means the First-tier Tribunal or, where determined by or under Tribunal Procedure Rules, the Upper Tribunal;

“UCITS fund” means—a UCITS within the meaning given by section 236A of the Financial Services and Markets Act 2000, oran undertaking established in Gibraltar which is a UCITS under the law of Gibraltar which implemented Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities.

Transitional provisions etc.

Transitional provisions and savings, repeals, abbreviations and general index

13

(1) Schedule 1 to these Regulations (which contains transitional provisions and savings) has effect.

(2) Schedule 2 to these Regulations (which contains repeals) has effect.

(3) The repeals contained in Schedule 2 have effect subject to the saving contained in paragraph 3(4) of Schedule 1.

(4) Schedule 3 to these Regulations (which contains abbreviations and defined expressions that apply for the purposes of these Regulations) has effect.

(5) Part 1 of Schedule 3 gives the meaning of the abbreviated references to Acts used in these Regulations.

(6) Part 2 of Schedule 3 lists the places where expressions used in these Regulations are defined or otherwise explained—

(a) in these Regulations for the purposes of these Regulations, or

(b) in these Regulations for the purposes of a Part or Chapter of these Regulations.

PART 2 — THE TREATMENT OF PARTICIPANTS IN NON-REPORTING FUNDS

CHAPTER 1 — PRELIMINARY PROVISIONS

Structure of this Part

14

The structure of this Part is as follows—

(a) this Chapter contains preliminary provisions;

(b) Chapter 2 deals with charges to tax on participants in non-reporting funds;

(d) Chapter 4 deals with disposals of interests in non-reporting funds;

(e) Chapter 5 deals with offshore income gains and the computation of offshore income gains;

(f) Chapter 6 deals with the deduction of offshore income gains in computing chargeable gains;

(g) Chapter 7 deals with the conversion of a non-reporting fund into a reporting fund.

Meaning of “material disposal”

15

In these Regulations a “material disposal” means a disposal to which this Part applies.

CHAPTER 2 — CHARGES TO TAX ON PARTICIPANTS IN NON-REPORTING FUNDS

Charge to tax on certain amounts treated as distributions

Treatment of certain amounts as distributions

16

(1) This regulation applies if a non-reporting fund which is a transparent fund has an interest in a reporting fund.

(2) In the case of any excess specified in regulation 94(1) or (2) which is treated, under that regulation, as made to the non-reporting fund, the Tax Acts have effect as if the excess were additional income of the participants in the non-reporting fund in proportion to their rights.

(3) The additional income is treated as arising on the same date as the excess is treated as made to the non-reporting fund.

(4) If a participant in the non-reporting fund is chargeable to income tax, the additional income is charged as relevant foreign income within the meaning given by section 830 of ITTOIA 2005 .

(5) If a participant in the non-reporting fund is chargeable to corporation tax, the additional income is charged under Chapter 8 of Part 10 of CTA 2009 (miscellaneous income: income not otherwise charged).

Charge to tax on disposal of asset

The charge to tax

17

(1) There is a charge to tax if—

(a) a person disposes of an asset,

(b) either condition A or condition B is met, and

(2) Condition A is that the asset is an interest in a non-reporting fund at the time of the disposal.

(3) Condition B is that—

(a) the asset is an interest in a reporting fund at the time of the disposal,

(b) the reporting fund was previously a non-reporting fund (becoming a reporting fund as the result of an application under regulation 52),

(d) an election under regulation 48 was not prevented by paragraph (5) of that regulation, and

(e) no election has been made under regulation 48(2).

(3A) Where the asset is an interest in a reporting fund acquired in consequence of an arrangement to which section 135 (exchange of securities for those in another company treated as not involving a disposal) or section 136 (scheme of reconstruction involving issue of securities treated as exchange not involving a disposal) of TCGA 1992 applied, the reporting fund referred to in sub-paragraph (b) of condition B is the fund that was company A for the purposes of either of those sections and the interest referred to in sub-paragraph (c) of condition B is the interest in that fund.

(4) For the purposes of paragraph (3)(c) the “material period” means a period beginning with the day on which consideration was given for the acquisition of the asset or on 1st January 1984 (whichever is the later) and ending with the day on which the fund became a reporting fund.

(4A) For the purposes of paragraph (4), where the asset was acquired on the vesting of variable remuneration represented by profit allocated under section 863I of ITTOIA 2005 (allocation of profit to the AIFM firm), the date on which the variable remuneration was awarded is treated as the date on which consideration was given for the acquisition of the asset.

(4B) Terms used in paragraph (4A) which are also used in section 863I of ITTOIA 2005 have the same meaning as in that section.

(5) Chapter 5 of this Part deals with offshore income gains and the computation of offshore income gains.

The charge to tax: further provisions

18

(1) The offshore income gain arising is treated for all the purposes of the Tax Acts as income which arises at the time of the disposal to the person making the disposal (or treated as making the disposal).

(2) The tax is charged on the person making the disposal (or treated as making the disposal).

(3) In the case of a person chargeable to income tax, tax is charged under Chapter 8 of Part 5 of ITTOIA 2005 (miscellaneous income: income not otherwise charged) for the year of assessment in which the disposal is made, but sections 688(1) and 689 of ITTOIA 2005 (income charged and person liable) do not apply.

(4) In the case of a person chargeable to corporation tax, tax is charged under Chapter 8 of Part 10 of CTA 2009 (miscellaneous income: income not otherwise charged) for the accounting period in which the disposal is made.

(5) Paragraph (1) is subject to—

(a) regulation 19 (income treated as arising under regulation 17: remittance basis);

(b) regulation 20(1) (offshore income gain arising to non-resident trustees not treated as income of settlor);

(d) regulation 24(6) (application of section 13 of TCGA 1992).

(6) Nothing in regulation 17 of these Regulations applies to—

(a) an authorised investment fund to which regulation 14ZB, 14ZD(1) or Part 6A of the Authorised Investment Fund (Tax) Regulations 2006 applies, ...

(b) an investment trust company to which regulation 43 or 45 of the Investment Trust (Approved Company) (Tax) Regulations 2011 apply, or

(c) the trustees of an exempt unauthorised unit trust to which regulations 22 or 23 of the Unauthorised Unit Trusts (Tax) Regulations 2013 applies.

Income treated as arising under regulation 17: remittance basis

19

(1) This regulation applies to income treated as arising under regulation 17 to an individual in a tax year if—

(a) section 809B, 809D or 809E of ITA 2007 (remittance basis) applies to the individual for that year, and

(b) the individual is not domiciled in the United Kingdom in that year.

(2) The income is treated as relevant foreign income of the individual.

(3) For the purposes of Chapter A1 of Part 14 of ITA 2007 (remittance basis)—

(a) any consideration obtained on the disposal of the asset is treated as deriving from the income, and

(b) unless the consideration so obtained is of an amount equal to or exceeding the market value of the asset, the asset is treated as deriving from the income.

(4) In paragraph (3)—

(a) “the asset” means the asset the disposal of which causes the income to be treated as arising, and

(b) “the disposal” means the disposal mentioned in sub-paragraph (a) of that paragraph.

(5) This regulation does not apply for the purposes of regulation 20.

Offshore funds and gains of non-resident settlements

Application to gains of non-resident settlements

20

(1) If an offshore income gain arises to a settlement in a tax year and the trustees of the settlement are not resident in the United Kingdom in the tax year, the gain is not regarded as income for the purposes of Chapter 5 of Part 5 of ITTOIA 2005 (settlements: amounts treated as income of settlor).

(2) If—

(a) offshore income gains arise to the trustees of a settlement in a tax year, and

(b) section 87 of TCGA 1992 (gains of non-resident settlements) applies to the settlement for that year,

the OIG amount for the settlement for that year is the amount of the offshore income gains.

(3) Sections 12, 87 to 90A and 96 to 98 of, and Schedule 4C to, TCGA 1992 apply in relation to OIG amounts as if—

(a) references to section 2(2) amounts (except those in paragraph 7B(2)(b) and (4) of Schedule 4C) were to OIG amounts,

(b) references to chargeable gains (except the one in paragraph 1(5) of Schedule 4C) were to offshore income gains,

(c) references to anything accruing were to it arising (and similar references, except the one in paragraph 1(5) of Schedule 4C, were read accordingly),

(d) sections 87(4), 88(2) to (5) and 97(6) and paragraphs 1(3A), 3 to 7 and 12 of Schedule 4C were omitted, and

(e) regulation 21 did not apply.

(4) Section 87A of TCGA 1992 applies for a tax year by virtue of paragraph (3) before it applies for that year otherwise than by virtue of that paragraph.

(5) If this regulation applies, the person to whom the offshore income gain arises is treated as the person making the disposal.

Offshore funds and the transfer of assets abroad

Application of transfer of assets abroad provisions

21

(1) Chapter 2 of Part 13 of ITA 2007 (transfer of assets abroad) applies in relation to an offshore income gain arising to a person resident or domiciled outside the United Kingdom as if the offshore income gain were income becoming payable to the person.

(2) Income treated as arising under that Chapter by virtue of paragraph (1) is regarded as “foreign” for the purposes of section 726, 730 or 735 of that Act.

(3) Paragraph (1) does not apply in relation to an offshore income gain if (and to the extent that) it is treated, by virtue of regulation 24, as arising to a person resident ... in the United Kingdom.

(4) The following provisions apply if regulation 20 applies in relation to an offshore income gain (the “relevant offshore income gain”).

(5) If—

(a) by virtue of regulation 20 an offshore income gain is treated as arising in a tax year to a person resident ... in the United Kingdom, and

(b) it is so treated by reason of the relevant offshore income gain (or part of it),

for that and subsequent tax years paragraph (1) does not apply in relation to the relevant offshore income gain (or that part).

(6) If, by virtue of paragraph (1) as it applies in relation to the relevant offshore income gain, income is treated under Chapter 2 of Part 13 of ITA 2007 as arising in a tax year, the OIG amount in question must be reduced (with effect from the following tax year) by the amount of the income.

Application of TCGA 1992

Application of certain provisions of TCGA 1992

22

(1) The following enactments have effect in relation to income tax or corporation tax in respect of offshore income gains as they have effect in relation to capital gains tax or corporation tax in respect of chargeable gains—

(a) section 2(1) of TCGA 1992 (persons chargeable to capital gains tax);

(b) section 10 of TCGA 1992 (non-resident with a United Kingdom branch or agency);

(2) Paragraph (1) is subject to paragraphs (3) and (4).

(3) In the application of section 10 of TCGA 1992 in accordance with paragraph (1), paragraphs (a) and (b) of subsection (1) (assets on the disposal of which chargeable gains are taxable) have effect with the omission of the words “situated in the United Kingdom and”.

(4) In the application of section 10B of TCGA 1992 in accordance with paragraph (1), paragraphs (a) and (b) of subsection (1) (assets on the disposal of which chargeable profits arise for the purposes of corporation tax) have effect with the omission of the words “situated in the United Kingdom and”.

Application of section 10A of TCGA 1992

23

(1) This regulation applies where an individual (“the taxpayer”) is temporarily non-resident.

(2) The taxpayer is chargeable to income tax as if offshore income gains within paragraph (3) were offshore income gains arising to the taxpayer in the period of return.

(3) The offshore income gains within this paragraph are those that—

(a) arise to the taxpayer in the temporary period of non-residence, and

(b) would be treated under section 13 of TCGA 1992 (attribution of gains to members of non-resident companies) as it applies to offshore income gains by virtue of regulation 24 as having arisen to the taxpayer in that period if the residence assumption were made.

(4) The residence assumption is—

(a) that the taxpayer had been resident in the United Kingdom for the tax year in which the offshore income gain arose to the company, or

(b) if that tax year was a split year as respects the taxpayer, that offshore income gain had arisen to the company in the UK part of it.

(5) But a gain is not within paragraph (3) if, ignoring this regulation, the taxpayer is chargeable to income tax in respect of it (and could not cease to be so chargeable by making a claim under section 6 of the Taxation (International and Other Provisions) Act 2010).

(6) Paragraph (2) is subject to regulation 23A.

(7) If section 809B, 809D or 809E of ITA 2007 (remittance basis) applies to the taxpayer for the year of return, any offshore income gains to which regulation 19(2) applies falling within paragraph (3) of this regulation by virtue of sub-paragraph (a) of that paragraph that were remitted to the United Kingdom at any time in the temporary period of non-residence are to be treated as remitted to the United Kingdom in the period of return.

(8) In this regulation—

(a) “remitted to the United Kingdom” has the same meaning as in Chapter A1 of Part 14 of ITA 2007,

(b) “split year” has the meaning given in paragraph 43 of Schedule 45 to the Finance Act 2013,

(d) “the UK part” of a split year has the meaning given in paragraph 56 of that Schedule.

(9) In this regulation and regulation 23A—

(a) “period of return” has the meaning given in paragraph 115 of Schedule 45 to the Finance Act 2013,

(b) “temporary period of non-residence” has the meaning given in paragraph 113 of that Schedule, and

Application of section 13 of TCGA 1992

24

(1) Section 13 of TCGA 1992 (chargeable gains accruing to certain non-resident companies) applies for the purposes of this Part with the following modifications.

(2) The section applies as if—

(a) for any reference to a chargeable gain there were substituted a reference to an offshore income gain; and

(b) for any reference to anything accruing there were substituted a reference to it arising (with similar references being read accordingly).

(3) The section applies as if, in subsection (5), paragraphs (b) and (c) were omitted.

(4) The section applies as if, in subsection (7), for the reference to capital gains tax there were substituted a reference to income tax or corporation tax.

(5) The section applies as if subsection (8) were omitted.

(6) If this regulation applies, the person to whom the offshore income gain arises is treated as the person making the disposal.

(7) To the extent that an offshore income gain is treated, by virtue of this regulation, as having accrued to any person resident ... in the United Kingdom, that gain shall not be deemed to be the income of any individual for the purposes of Chapter 2 of Part 13 of ITA 2007 (transfer of assets abroad).

CHAPTER 3 — EXCEPTIONS ETC. FROM THE CHARGE TO TAX

Exceptions from the charge

25

(1) No liability to tax arises under regulation 17 if any of conditions A to E is met.

(2) Condition A is that the participant is required to treat the interest in the fund as a loan relationship under Chapter 3 of Part 6 of CTA 2009.

(3) Condition B is that the participant is required to treat the interest in the fund as a derivative contract to which the provisions of Part 7 of CTA 2009 apply.

(4) Condition C is that the asset is an intangible fixed asset to which the provisions of Part 8 of CTA 2009 apply.

(5) Condition D is that the asset consists of excluded indexed securities as defined in section 433 of ITTOIA 2005.

(6) Condition E is that the asset is a right arising under a policy of insurance.

Trading stock etc.

26

(1) No liability to tax arises under regulation 17 if condition A or B is met.

(2) Condition A is that the interest in the fund is held as trading stock.

(3) Condition B is that the disposal of the interest is taken into account in computing the profits of a trade.

Long-term insurance funds of insurance companies

27

(1) No liability to tax arises under regulation 17 in respect of disposals of assets of an insurance company's long-term insurance fund.

(2) In paragraph (1) “insurance company” and “long-term insurance fund” have the same meaning as in section 431(2) of ICTA .

Loans other than participating loans

28

(1) No liability to tax arises under regulation 17 if the asset is a loan which is not a participating loan.

(2) For the purposes of paragraph (1) a “participating loan” means a loan where the amount payable on redemption exceeds the issue price by an amount which is determined in whole or in part by reference to the income of the non-reporting fund.

Interests in transparent funds

29

(1) No liability to tax arises under regulation 17 if—

(a) the disposal is the disposal of an interest in an offshore fund falling within paragraph (b) or (c) of section 40A(2) of FA 2008 , and

(b) the fund is a transparent fund.

This is subject to paragraphs (2) and (3).

(2) But there is a charge to tax under regulation 17 if—

(a) there is a disposal of an interest in a transparent fund, and

(b) during a period beginning with the date the interest (or any part of it) was acquired and ending with the date of the disposal, the offshore fund has at any time held interests in other non-reporting funds which amounted in total to more than 5% by value of the offshore fund's assets.

(3) And there is a charge to tax under regulation 17 if—

(a) there is a disposal of an interest in a transparent fund,

(b) the fund is a non-reporting fund, and

(c) the fund fails to make sufficient information available to participants in the fund to enable those participants to meet their tax obligations in the United Kingdom with respect to their shares of the income of the fund.

(4) If, on the disposal by an offshore fund of an interest in another non-reporting fund, no liability would arise under regulation 17 by virtue of this regulation, that interest is not taken into account for the purposes of paragraph (2)(b).

Rights in certain existing holdings

30

(1) No liability to tax arises under regulation 17 in respect of any rights in an offshore fund to which this regulation applies if the rights are acquired by a person—

(a) before 1st December 2009, or

(b) in accordance with paragraph (2).

(2) Rights are acquired in accordance with this paragraph if—

(a) the rights are acquired by the participant in accordance with a legally enforceable agreement in writing that was entered into by the participant before 30th April 2009,

(b) in the case of an agreement which was conditional, the conditions are met before that date, and

(3) Rights of a person in a fund are rights in an offshore fund to which this regulation applies if, on the date on which the person acquired the rights, those rights did not constitute a material interest in an offshore fund within the meaning of that expression given by section 759 of ICTA .

Charitable companies and charitable trusts

31

(1) A charitable company shall be exempt from corporation tax in respect of an offshore income gain if the gain is applicable and applied for charitable purposes.

(2) See section 535 of ITA 2007 for an exemption for income tax purposes for offshore income gains accruing to a charitable trust.

(3) Paragraphs (4) and (5) apply if—

(a) property held on charitable trusts ceases to be subject to charitable trusts, and

(b) that property represents directly or indirectly an offshore income gain.

(4) The trustees are treated as if they had disposed of and immediately reacquired that property for a consideration equal to its market value.

(5) An offshore income gain accruing on the disposal arising under paragraph (4) is treated as an offshore income gain not accruing to a charity.

(6) In this regulation “charity” and “charitable company” have the same meaning as in section 506 of ICTA .

CHAPTER 4 — DISPOSALS OF INTERESTS IN NON-REPORTING FUNDS

Basic provisions

Application of this Chapter

32

This Chapter applies if a participant disposes of an asset and at the time of the disposal—

(a) the asset is an interest in a non-reporting fund, or

(b) the asset is an interest in a reporting fund and the requirements specified in paragraph (3) of regulation 17 (read, as appropriate, with paragraphs (4) and (5) of that regulation) are met.

Disposal of an asset: the basic rule

33

(1) There is a disposal of an asset for the purposes of these Regulations if there would be a disposal of an asset for the purposes of TCGA 1992.

(2) Paragraph (1) is subject to the following provisions of this Chapter.

Further provisions

Provisions applicable on death

34

(1) Notwithstanding anything in paragraph (b) of subsection (1) of section 62 of TCGA 1992 (general provisions applicable on death: no deemed disposal by the deceased), where a person dies and the assets of which the deceased was competent to dispose at the time of death include an interest in a non-reporting fund, then, for the purposes of these Regulations—

(a) immediately before the acquisition referred to in paragraph (a) of that subsection, that interest shall be deemed to be disposed of by the deceased for such a consideration as is mentioned in that subsection; but

(b) nothing in this regulation affects the determination, in accordance with regulation 32, of the question whether that deemed disposal is one to which this Chapter applies.

(2) Subject to paragraph (1), section 62 of TCGA 1992 applies for the purposes of these Regulations as it applies for the purposes of that Act, and the reference in that paragraph to the assets of which a deceased person was competent to dispose are to be construed in accordance with subsection (10) of that section.

Application of section 135 of TCGA 1992

35

(1) Section 135 of TCGA 1992 (exchange of securities for those in another company treated as not involving a disposal) does not apply for the purposes of this Part to the extent that—

(a) the interest in the entity that is company A for the purposes of that section that is exchanged is an interest in a non-reporting fund, and

(b) the interest in the entity that is company B for those purposes that is exchanged is not an interest in such a fund.

(2) In a case where section 135 of TCGA 1992 would apply apart from paragraph (1), the exchange in question shall for the purposes of this Part constitute a disposal of interests in the non-reporting fund for a consideration equal to their market value at the time of the exchange.

Application of section 136 of TCGA 1992

36A

(1) The following sections of TCGA 1992 do not apply to the extent that an interest in a non-reporting fund is exchanged or treated as exchanged for an asset which is not an interest in a non-reporting fund.

(2) The sections are—

(a) section 103G (exchange of units for those in another collective investment scheme),

(b) section 103H (scheme of reconstruction involving issue of units),

(d) section 136 (scheme of reconstruction involving issue of securities).

(3) In a case where one of those sections would apply apart from paragraph (1), the exchange or deemed exchange shall for the purposes of this Part constitute a disposal of interests in the non-reporting fund for a consideration equal to their market value at the time of the exchange or deemed exchange.

Exchange of interests of different classes

37

(1) If conditions A to D are met, section 127 of TCGA 1992 (equation of original shares and new holding) does not prevent an exchange from constituting a disposal for the purposes of these Regulations.

(2) Condition A is that an offshore fund is constituted by a class of interest (“class A”) in main arrangements.

(3) Condition B is that a participant exchanges an interest of class A for an interest in another offshore fund constituted by a different class of interest (“class B”) in those main arrangements.

(4) Condition C is that the interest of class A is at the time of the exchange an interest in a non-reporting fund.

(5) Condition D is that the interest of class B is at the time of the exchange an interest which is not an interest in a non-reporting fund.

(6) Any disposal to which this regulation applies is to be treated as a disposal for a consideration equal to the market value of the rights at the time of the exchange.

CHAPTER 5 — OFFSHORE INCOME GAINS AND THE COMPUTATION OF OFFSHORE INCOME GAINS

General provisions

38

(1) An offshore income gain arises to a person on the disposal of an asset if a basic gain arises on the disposal.

(2) The disposal gives rise to an offshore income gain of an amount equal to the basic gain on the disposal.

(3) The following provisions of this Chapter explain how the basic gain is computed.

The basic gain and its computation

39

(1) In the case of a participant chargeable to income tax, the basic gain is a gain of the amount which would be the gain on that disposal for the purposes of TCGA 1992 if the gain were computed without regard to any charge to income tax arising under this Part.

(2) In the case of a participant chargeable to corporation tax, the basic gain is a gain of the amount which would be the gain on that disposal for the purposes of TCGA 1992 if the gain were computed—

(a) without regard to any charge to corporation tax arising under this Part, and

(b) without regard to any indexation allowance on the disposal under TCGA 1992.

(3) The computation of the basic gain is subject to—

(a) regulation 34 (provisions applicable on death);

(aa) regulation 36A (exchanges and schemes of reconstruction);

(d) regulation 37 (exchange of interests of different classes;

(e) regulation 40 (earlier disposal to which the no gain/no loss basis applies);

(f) regulation 41 (modifications of TCGA 1992);

(g) regulation 42 (losses);

(h) regulation 43 (special rules for certain existing holdings).

Earlier disposal to which the no gain/no loss basis applies

40

(1) This regulation applies if—

(a) a participant is chargeable to corporation tax, and

(b) the amount of any chargeable gain or allowable loss which would arise on the disposal would fall to be computed in a way which, in whole or in part, would take account of the indexation allowance on an earlier disposal to which section 56(2) of TCGA 1992 (disposals on a no gain/no loss basis) applies.

(2) The basic gain on the disposal is computed as if—

(a) no indexation allowance had been available on any such earlier disposal, and

(b) subject to that, neither a gain nor a loss had arisen to the person making such an earlier disposal.

Modifications of TCGA 1992

41

(1) If the disposal forms part of a transfer to which section 162 of TCGA 1992 (roll-over relief on transfer of business) applies, the basic gain arising on the disposal is computed without regard to any deduction which falls to be made under that section in computing a chargeable gain.

(2) If the disposal is made otherwise than under a bargain at arm's length and a claim for relief is made in respect of that disposal under section 165 or 260 of TCGA 1992 (relief for gifts), the claim does not affect the computation of the basic gain arising on the disposal.

Losses

42

(1) If the effect of any computation under regulations 39 to 41 would be to produce a loss, the basic gain on the disposal is nil.

(2) Paragraph (1) applies notwithstanding section 16 of TCGA 1992 (losses determined in like manner as gains).

(3) Accordingly, for the purposes of these Regulations, no loss is to be treated as arising on the disposal.

Special rules for certain existing holdings

43

(1) This regulation applies if—

(a) a person acquired rights (the “protected rights”) in an offshore fund—

(i) before 1st December 2009, or

(ii) in accordance with paragraph (2),

(b) immediately before 1st December 2009 those rights did not constitute a material interest in an offshore fund within the meaning of that expression given by section 759 of ICTA , and

(c) on or after 1st December 2009 the person acquires additional rights in the offshore fund (the “non-protected rights”).

(2) Rights are acquired in accordance with this paragraph if—

(a) the rights are acquired by the participant in accordance with a legally enforceable agreement in writing that was entered into by the participant before 30th April 2009,

(b) in the case of an agreement which was conditional, the conditions are met before that date, and

(3) For the purposes of tax in respect of chargeable gains—

(a) section 104 of TCGA 1992 (share pooling: general interpretative provisions) applies as if the protected rights were assets of a different class from the non-protected rights, and

(b) all the protected rights must be treated as disposed of before any of the non-protected rights may be so treated.

CHAPTER 6 — DEDUCTION OF OFFSHORE INCOME GAINS IN COMPUTING CHARGEABLE GAINS

Ambit of this Chapter

44

(1) This Chapter applies if—

(a) a material disposal gives rise to an offshore income gain, and

(b) that disposal also constitutes the disposal of the interest concerned for the purposes of TCGA 1992.

(2) In this Chapter the disposal specified in paragraph (1)(b) is called the “TCGA disposal”.

Treatment of the TCGA disposal: general rules

45

(1) This regulation applies for the purposes of the computation of the chargeable gain arising on the TCGA disposal.

(2) The provisions of this regulation have effect in relation to the TCGA disposal in substitution for section 37(1) of TCGA 1992 (deduction of consideration chargeable to tax on income).

(3) In the computation of the gain arising on the TCGA disposal, a sum equal to the offshore income gain shall be deducted from the sum which would otherwise constitute the amount or value of the consideration for the disposal.

(4) Paragraph (3) is subject to the following provisions of this Chapter.

(5) Paragraph (6) applies if the TCGA disposal is of such a nature that, by virtue of section 42 of TCGA 1992 (part disposals), an apportionment falls to be made of certain expenditure.

(6) No deduction is to be made by virtue of paragraph (3) in determining the amount or value of the consideration for the purposes of the fraction in section 42(2) of TCGA 1992.

Modification of section 162 of TCGA 1992

46

(1) This regulation applies if the TCGA disposal forms part of a transfer to which section 162 of TCGA 1992 applies (roll-over relief on transfer of business in exchange wholly or partly for shares).

(2) For the purposes of subsection (4) of section 162 of TCGA 1992 (determination of the amount of the deduction from the gain on the old assets) “B” in the fraction in that subsection (the value of the whole of the consideration received by the transferor in exchange for the business) is to be taken to be what it would be if the value of the consideration other than shares so received by the transferor were reduced by an amount equal to the offshore income gain.

Application of section 128 of TCGA 1992

47

(1) This regulation applies if there is a disposal to which this Part applies by virtue of—

(aa) regulation 36A (exchanges and schemes of reconstruction), or

(2) TCGA 1992 has effect as if an amount equal to the offshore income gain to which that disposal gives rise were given (by the person making the exchange) as consideration for the new holding (within the meaning of section 128 of that Act (consideration given or received for new holding on a reorganisation)).

CHAPTER 7 — THE CONVERSION OF A NON-REPORTING FUND INTO A REPORTING FUND

Consequences of conversion for participants

48

(1) This regulation applies if an offshore fund ceases to be a non-reporting fund and becomes a reporting fund.

(2) A participant in the fund may make an election to be treated—

(a) as disposing of the interest owned by the participant in the non-reporting fund at its market value on the disposal date, and

(b) as acquiring a holding in the reporting fund at the beginning of the reporting fund's first period of account.

This is subject to paragraphs (5) and (5A).

(3) Chapter 5 of this Part applies to determine the offshore income gain arising on the deemed disposal referred to in paragraph (2)(a).

(4) The deemed acquisition referred to in paragraph (2)(b) is treated as made for the same amount as the deemed disposal referred to in paragraph (2)(a).

(5) An election may not be made under paragraph (2) unless the offshore income gain arising on the deemed disposal referred to in paragraph (2)(a) (determined in accordance with paragraph (3)) is greater than zero.

(5A) If the interest owned by the participant represents variable remuneration represented by profit allocated under section 863I of ITTOIA 2005 (allocation of profit to the AIFM firm), an election may not be made under paragraph (2) if the fund ceases to be a non-reporting fund and becomes a reporting fund before the remuneration has vested in the participant.

(6) If the participant is chargeable to income tax, the election mentioned in paragraph (2) must be made by being included in a return made for the tax year which includes the disposal date.

(7) If the participant is chargeable to corporation tax, the election mentioned in paragraph (2) must be made by being included in the participant's company tax return for the accounting period which includes the disposal date.

(8) In this regulation—

PART 3 — REPORTING FUNDS AND THE TREATMENT OF PARTICIPANTS IN REPORTING FUNDS

CHAPTER 1 — PRELIMINARY PROVISIONS

Structure of this Part

49

(1) The structure of this Part is as follows—

(a) this Chapter contains preliminary provisions;

(b) Chapter 2 deals with entry into the reporting fund regime;

(d) Chapter 4 deals with the preparation of accounts;

(e) Chapter 5 deals with the computation of reportable income;

(f) Chapter 6 deals with transactions by certain reporting funds which are not treated as trading;

(fa) Chapter 6A deals with transparent reporting funds;

(g) Chapter 7 deals with reports to participants;

(h) Chapter 8 deals with the tax treatment of participants in reporting funds;

(i) Chapter 9 deals with the provision of information to HMRC;

(j) Chapter 10 deals with breaches of reporting fund requirements;

(k) Chapter 11 deals with leaving the reporting fund regime;

(l) Chapter 12 deals with constant NAV funds.

(2) This Part contains provisions applying to—

(a) funds that are not constant NAV funds (see Chapters 2 to 11), ...

(aa) transparent reporting funds (see Chapter 6A), and

(b) constant NAV funds (see Chapter 12).

(3) Chapters 4 to 6 do not apply to transparent reporting funds.

Meaning of “reporting fund”

50

In these Regulations a “reporting fund” means an offshore fund to which this Part applies for a period of account.

CHAPTER 2 — ENTRY INTO THE REPORTING FUND REGIME

Applications for this Part to apply

Who may make an application

51

(1) The manager of an eligible offshore fund may make an application for this Part to apply to the fund.

(2) If it is proposed to establish an offshore fund which, on its establishment, is to be an eligible offshore fund, the person expected to become the manager of the fund on its establishment (the “applicant”) may make an application for this Part to apply to the fund on its establishment.

(3) In this Part—

Conversion of non-reporting fund into reporting fund

52

(1) The manager of a non-reporting fund may make an application for this Part to apply to a fund if the fund is an eligible offshore fund, and—

(a) has never been a reporting fund, or

(b) has been a reporting fund, but ceased to be such a fund because it gave notice under regulation 116.

(2) The provisions of this Part that apply to an existing fund application also apply to an application made under paragraph (1).

Contents of an application

53

(1) An application must include the following—

(a) a statement of the first period of account for which it is proposed that this Part should apply to the fund;

(b) an undertaking that no period of account will exceed 18 months;

(c) a statement whether or not the fund intends to prepare its accounts in accordance with international accounting standards, and, if it does not, a statement of which generally accepted accounting practice it intends to use;

(d) in a case in which the fund does not intend to prepare its accounts in accordance with international accounting standards, a statement specifying the entries in the fund's accounts that are considered to equate to “total comprehensive income for the period” as that expression is used in international accounting standards;

(e) in a case in which the fund does not intend to prepare its accounts in accordance with international accounting standards, a statement specifying how the fund intends—

(i) to comply with regulation 66(1)(b), or

(ii) to calculate the adjustment required by regulation 66(2);

(f) an undertaking to meet the requirements relating to reports to participants in the fund (see Chapter 7);

(g) an undertaking to meet the requirements relating to the provision of information to HMRC (see Chapter 9).

(h) a statement whether or not the fund intends to operate equalisation arrangements;

(i) in a case in which the fund does intend to operate equalisation arrangements, a statement whether or not the fund intends to operate full equalisation arrangements;

(j) in a case in which the fund does not intend to operate equalisation arrangements, a statement specifying whether or not the fund intends to make income adjustments in a reporting period;

(k) in a case in which the fund intends to make income adjustments in a reporting period, a statement specifying—

(i) whether the fund intends to make those adjustments on the basis of reportable income (see regulation 72A) or on the basis of accounting income (see regulation 72B), and

(ii) the length of the computation period (see regulation 72C);

(l) in a case in which the fund intends to make income adjustments in a reporting period on the basis of accounting income—

(i) a statement by the fund manager specifying how the accounting income is to be determined,

(ii) a statement by the fund manager that, on the basis of this determination, it is reasonable to expect that the difference between the amount of reportable income per unit calculated using this method and the amount of reportable income per unit calculated on the basis of reportable income will be 10% or less of the latter of those amounts, and

(iii) an undertaking by the manager to meet the requirements relating to alternative income adjustments and notice to HMRC (see regulation 72B(6)).

(2) An existing fund application must be accompanied by the prospectus.

(3) A future fund application must be accompanied by the proposed prospectus.

(4) The application must be in English.

(5) If the prospectus or the proposed prospectus (as the case may be) is not in English, it must be accompanied by an English translation.

(6) In the case of an offshore fund constituted in the manner described in regulation 5 or 6, the requirements of this regulation may be met by providing material which is—

(a) applicable to an entity which includes the fund, and

(b) relevant for the application for this Part to apply to the fund.

Form, timing and withdrawal of application

54

(1) An application must be made in writing to HMRC.

(2) The application must be received by HMRC before the later of—

(a) the end of the first period of account for which it is proposed that this Part should apply to the fund, and

(b) the expiry of a period of 3 months beginning with the first day on which interests in the fund are made available to investors resident in the United Kingdom.

(3) The application may be withdrawn—

(a) at any time during a period beginning with the day the application is made and ending on the expiry of a period of 28 days beginning on the day on which HMRC give notice under regulation 55(1) or (5), or

(b) at any later time, but before the end of the first reporting period, if HMRC are satisfied that the fund is not in breach of the requirements imposed by Part 3.

(4) The application must be withdrawn—

(a) by the manager (in the case of an existing fund application), or

(b) by the applicant (in the case of a future fund application).

Procedure on applications

Response by HMRC to application

55

(1) Within 28 days beginning with the day on which HMRC receive the application, HMRC must give notice to the person who made the application—

(a) accepting the application,

(b) rejecting the application, or

(2) HMRC must not accept an application if any item mentioned in regulation 53 is not supplied.

(3) HMRC must not accept an application if they consider that there will be a significant difference, in computing reportable income (see Chapter 5 or 6A), between—

(a) the result given by the use of international accounting standards, and

(b) the result given by the use of the accounting practice specified in the application and by the use of the entries in the fund's accounts, specified in the application, that are considered to equate to “total comprehensive income for the period” as that expression is used in international accounting standards (see regulation 63).

(3A) Where the fund intends to make income adjustments on the basis of accounting income (see regulation 53(1)(l)), HMRC must not accept an application if they do not consider that it is reasonable to expect that the difference between the amount of reportable income per unit calculated using this method and the amount of reportable income per unit calculated on the basis of reportable income will be 10% or less of the latter of those amounts.

(4) Paragraph (5) applies if—

(a) HMRC have given notice under paragraph (1)(c), and

(b) the person who made the application provides further information within a period of 28 days beginning with the day on which HMRC ask for further information, or within such longer period as is agreed by HMRC.

(5) Within 28 days beginning with the day on which HMRC receive the further information, HMRC must give notice to the person who made the application—

(a) accepting the application, or

(b) rejecting the application.

Appeal against rejection of application

56

(1) If HMRC reject an application, the person who made the application may appeal.

(2) The notice of appeal must be given to HMRC within a period of 42 days beginning with the day on which the notice rejecting the application is given.

(3) On an appeal, the tribunal may uphold or quash the rejection of the application.

(4) If the tribunal quashes the rejection of the application, this Part applies as if HMRC had accepted the application in the form in which it was considered by the tribunal.

CHAPTER 3 — THE GENERAL DUTIES OF REPORTING FUNDS

Effects of entry into the reporting fund regime

57

(1) If HMRC accept an application, the offshore fund becomes a reporting fund on whichever is the later of—

(a) the first day of the first period of account mentioned in regulation 53(1)(a), or

(b) the day on which the fund is established.

This paragraph and paragraphs (2) and (3) are subject to paragraph (4).

(2) This Part applies to the fund and to its participants on and after the date specified in paragraph (1).

(3) Once this Part has begun to apply to a fund, it shall continue to apply unless and until it ceases to apply in accordance with Chapter 11 of this Part.

(4) Where an application has been withdrawn under regulation 54(3)(b), the fund and its participants shall be treated as if the fund had never been a reporting fund.

General duties of reporting funds

58

A reporting fund must—

(a) prepare accounts in accordance with the requirements of Chapter 4 (except in the case of transparent reporting funds);

(b) provide a computation of its reportable income in accordance with the requirements of Chapter 5 or 6A, as the case may be;

(d) provide information to HMRC in accordance with the requirements of Chapter 9.

CHAPTER 4 — THE PREPARATION OF ACCOUNTS

Accounts to be prepared in accordance with acceptable accounting policy

59

A reporting fund must prepare accounts—

(a) in accordance with international accounting standards, or

(b) in accordance with the generally accepted accounting practice specified in the application.

Change in accounting policy

60

(1) This regulation applies if—

(a) there is a change of accounting policy in drawing up a reporting fund's accounts from one period of account (in this Chapter called the “earlier period”) to the next (in this Chapter called the “later period”), and

(b) the approach in each of those periods accords with the law and practice applicable in relation to that period.

(2) If there is a difference between—

(a) the accounting value of an asset or liability of the offshore fund at the end of the earlier period, and

(b) the accounting value of that asset or liability at the beginning of the later period,

a corresponding debit or credit (as the case may be) must be brought into account for the purposes of these Regulations in the later period.

(3) In paragraph (2) “accounting value” means the carrying value of the asset or liability recognised for accounting purposes.

Change in accounting practice to a generally accepted accounting practice

61

(1) This regulation applies if—

(a) there is a change of accounting practice in drawing up a reporting fund's accounts from the earlier period to the later period, and

(b) the fund prepares accounts for the later period in accordance with a generally accepted accounting practice.

(2) If the accounts for the later period are not prepared in accordance with international accounting standards, the offshore fund must give notice to HMRC—

(a) applying for approval of the generally accepted accounting practice, and

(b) providing the statement mentioned in regulation 53(1)(d).

(3) If the accounts for the later period are prepared in accordance with international accounting standards, the offshore fund must give notice to HMRC.

(4) Within 28 days beginning with the day on which HMRC receive an application under paragraph (2), HMRC must give notice to the offshore fund—

(a) accepting the application, or

(b) rejecting the application.

(5) If HMRC reject an application, the offshore fund may appeal.

(6) The notice of appeal must be given to HMRC within a period of 42 days beginning with the day on which the notice rejecting the application is given.

(7) On an appeal, the tribunal may uphold or quash the rejection of the application.

CHAPTER 5 — THE COMPUTATION OF REPORTABLE INCOME

General

Duty to provide computation

62

(1) This Chapter explains how reportable income is computed.

(2) A reporting fund must provide a computation of its reportable income for a period of account.

Computation of reportable income: general

63

(1) The starting point for computing the reportable income of a reporting fund for a period of account is—

(a) in a case in which the fund prepares its accounts in accordance with international accounting standards, the “total comprehensive income for the period” as that expression is used in international accounting standards, or

(b) in any other case, the entries in the fund's accounts that are considered to equate to “total comprehensive income for the period” as that expression is used in international accounting standards.

(2) The starting point specified in paragraph (1) must be adjusted having regard to—

(a) capital items and miscellaneous items (see regulations 64 and 65),

(b) special classes of income (see regulations 66 to 71), and

(3) In the case of any one item, an adjustment under paragraph (2) may be made only once (even if more than one of the regulations mentioned in that paragraph apply to that item).

(4) The reportable income of the reporting fund for the period of account is the amount computed in accordance with the provisions of this Chapter and of Chapter 6.

(5) But if the computation gives rise to a negative amount, the reportable income is nil.

Adjustments for capital items and miscellaneous items

Treatment of capital items following IMA SORP

64

(1) The capital items for which an adjustment is required are such profits, gains or losses as would fall to be dealt with under the heading “net capital gains/losses” in the statement of total return for the period of account if the accounts for that period were to be prepared in accordance with the IMA SORP.

(2) The amount specified in regulation 63(1) must be adjusted by—

(a) deducting gains that fall within the heading specified in paragraph (1), and

(b) adding losses that fall within that heading.

(3) A profit or loss from a trade may not be treated as a capital item for the purposes of this regulation. This paragraph is subject to regulation 80.

(4) For the purposes of paragraph (1) the IMA SORP applies to determine the “net capital gains/losses” of an offshore fund for a period of account in the same way that it applies to determine the “net capital gains/losses” of an authorised investment fund for an accounting period.

(5) In this regulation—

“authorised investment fund” has the meaning given in the Authorised Investment Funds (Tax) Regulations 2006 ;

“the IMA SORP” means, in relation to any period of account for which it is required or permitted to be used, the Statement of Recognised Practice relating to authorised investment funds issued by the Investment Management Association in November 2008, as from time to time modified, amended or revised.

Treatment of other capital items

65

(1) The amount specified in regulation 63(1) must also be adjusted by adding the amounts specified in paragraph (2).

(2) Those amounts are—

(a) expenses directly related to acquisition or disposal of investments (other than those taken into account in arriving at the amounts specified in sub-paragraph (a) or (b) of regulation 64(2)), ...

(b) costs relating to the setting up, merger or dissolution of the fund, and

(c) sums payable or allocated to the manager of a fund calculated by reference to an increase in the net asset value of the fund or a formula designed to reward the manager’s performance.

Adjustments for special classes of income

Effective interest income or comparable amounts

66

(1) This regulation applies if the accounting practice used does not include—

(a) the effective interest method for computing interest income (as described in international accounting standard 39 and equivalent United Kingdom financial reporting standards), or

(b) another method of accounting for interest in such a way that the difference between the purchase price of an asset and the expected redemption price of the asset is taken into account as part of the interest income over the expected life of the asset.

(2) The amount specified in regulation 63(1) must be adjusted by the addition of the net income computed by taking into account the expected redemption price of any interest bearing assets over the expected life of the asset.

(3) The sum mentioned in paragraph (2) may be computed by any reasonable method which—

(a) takes into account the full expected gain or loss on the asset, and

(b) gives a reasonably comparable result to the effective interest method.

Income from wholly-owned subsidiaries

67

(1) This regulation applies if a reporting fund has a wholly-owned subsidiary.

(2) For the purposes of this regulation, a company is a wholly-owned subsidiary of an offshore fund if and so long as the whole of the issued share capital of the company is—

(a) in the case of an offshore fund falling within paragraph (a) of the definition of “offshore fund” in section 40A(2) of FA 2008 , directly or indirectly owned by the fund;

(b) in the case of an offshore fund falling within paragraph (b) of the definition of “offshore fund” in that enactment, directly or indirectly owned by the trustees of the fund for the benefit of the fund;

(c) in the case of an offshore fund falling within paragraph (c) of the definition of “offshore fund” in that enactment, owned in a manner which, as near as may be, corresponds either to paragraph (a) or paragraph (b) above.

(3) But in the case of a company which has only one class of issued share capital, the reference in paragraph (2) to the whole of the issued share capital shall be construed as a reference to at least 95% of that share capital.

(4) That percentage of the receipts, expenditure, assets and liabilities of the subsidiary which is equal to the percentage of the issued share capital of the company concerned which is owned as mentioned in paragraph (2) shall be regarded as the receipts, expenditure, assets and liabilities of the fund.

(5) There shall be left out of account—

(a) the interest of the fund in the subsidiary, and

(b) any distributions or other payments made by the subsidiary to the fund or by the fund to the subsidiary.

(6) The adjustments required under regulations 64 and 65 must be made to the amount determined under paragraph (4).

Income from other reporting funds

68

(1) This regulation applies if a reporting fund (“RF1”) has an interest in another reporting fund (“RF2”).

(2) The excess (if any) of the income reported by RF2 in respect of RF1's interest in RF2 over the amount distributed by RF2 to RF1 must be added by RF1 to the amount specified in regulation 63(1) after making the adjustments specified in regulations 64 and 65.

(3) The adjustment specified in paragraph (2) must be made in the computation of the reportable income of RF1 for the period of account in which the fund distribution date of RF2 falls or, if earlier, in which the date on which the reported income from RF2 in respect of that reporting period is recognised in the accounts of RF1.

(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) If RF2 does not make a report available in accordance with regulation 90(5), RF1 must—

(a) include its best estimate of reported income from RF2 as an adjustment to the computation of its reportable income for the period of account in which the latest possible fund distribution date for RF2 falls (to the extent that any such amount has not already been recognised in the computation of RF1's reportable income for that or any earlier period of account), and

(b) make any necessary corrections to its best estimate in its computation of reportable income for the first later period of account in which it has sufficient information to make those corrections.

Income from non-reporting funds: first case

69

(1) This regulation applies if—

(a) a reporting fund has an interest in a non-reporting fund, and

(b) the conditions in paragraph (2) are met for a period of account.

(2) The conditions are that—

(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) the reporting fund has access to the accounts of the non-reporting fund;

(c) the reporting fund has sufficient information about the non-reporting fund to enable it to prepare a computation of reportable income for the non-reporting fund; and

(d) the reporting fund can reasonably expect to be able to rely on continued access to that information for the period in which it will hold the investment in the non-reporting fund.

(3) Regulation 68(1) to (3) applies as if the reporting fund were RF1 and the non-reporting fund were RF2.

(4) For the purposes of the computation mentioned in paragraph (2)(c), regulation 80 applies if (and only if) the non-reporting fund is a UCITS fund.

(5) For the purposes of applying regulation 68, “fund distribution date” means the date six months after the end of the period of account in which the income arose.

(6) If the period of account referred to in paragraph (5) is more than 12 months, there shall be two periods of account and two fund distribution dates for the purposes of applying regulation 68.

The first fund distribution date is the date six months after the end of the first 12 months in the period of account.

The second fund distribution date is the date six months after the end of the period of account in which the income arose.

Income from non-reporting funds: second case

70

(1) This regulation applies if a reporting fund has an interest in a non-reporting fund, but the conditions in regulation 69(2) are not met for a period of account.

(2) No adjustments may be made under regulations 64 and 65 in respect of the interest in the non-reporting fund.

(3) But if the condition specified in paragraph (4) is met, losses made by a reporting fund in earlier periods of account on an investment in a non-reporting fund may be set against gains made on the investment in the non-reporting fund to reduce the reportable income of the reporting fund, but only to the extent that the losses—

(a) have not previously had the effect of reducing income for the period of account in which they were incurred, or

(b) have not been used previously to reduce gains arising to the non-reporting fund.

(4) The condition specified is that the losses in earlier periods of account were all made during periods in which this Part applied continuously to the reporting fund.

Income from non-reporting funds if first case ceases to apply

71

(1) This regulation applies if—

(a) a reporting fund has an interest in a non-reporting fund, and

(b) the conditions in regulation 69(2) have been met for an earlier period of account but are no longer met for a later period of account.

(2) Regulation 70 applies for the later period of account and for all subsequent periods of account.

Adjustments for equalisation arrangements

Treatment of reporting funds operating equalisation arrangements

72

(1) This regulation applies if a reporting fund operates equalisation arrangements.

(2) If a person acquires an interest in the fund by way of initial purchase, the reportable income must be increased by an amount equal to that part of the acquisition price which is attributable to the undistributed income which has accrued to the fund in the period of account up to the time of the acquisition and which is taken into account in determining the acquisition price (“the equalisation amount”).

(3) If a participant disposes of an interest in the fund by way of redemption, the reportable income must be reduced by an amount equal to that part of the redemption price which is attributable to the undistributed income which has accrued to the fund in the period of account up to the time of the redemption and which is taken into account in determining the redemption price.

(4) For the purposes of these Regulations a person acquires an interest in an offshore fund by way of initial purchase if the acquisition is by way of subscription for or allotment of new shares, units or other interests issued or created by the fund or by way of direct purchase from the managers of the fund acting in their capacity as managers of the fund.

(5) For the purposes of this regulation a person disposes of an interest in a fund by way of redemption if the disposal is by way of cancellation of the units, shares or other interest or by way of direct sale to the managers of the fund acting in their capacity as managers of thefund.

CHAPTER 6 — TRANSACTIONS BY CERTAIN REPORTING FUNDS WHICH ARE NOT TREATED AS TRADING

Conditions to be met by reporting funds for this Chapter to apply

Introductory

73

(1) A reporting fund meets the conditions for this Chapter to apply in respect of a period of account if it meets—

(a) the equivalence condition (see regulation 74), and

(b) the genuine diversity of ownership condition (see regulations 75 and 76).

(2) In this Part a “diversely owned fund” means a reporting fund in respect of which the conditions mentioned in paragraph (1) are met for a period of account.

The equivalence condition

74

(1) The equivalence condition is met if the fund meets condition A , B or C throughout the period of account.

(2) Condition A is that the fund is recognised by the Financial Conduct Authority within the meaning of section ...... 272 of FISMA 2000.

(3) Condition B is that the fund is a UCITS fund.

(4) Condition C is that the fund—

(a) is constituted in another EEA state and authorised by the competent authority in that state to market to retail or professional investors, and

(b) is required either by the competent authority in that state or by other binding arrangements to limit its borrowing and its exposure under derivative contracts and forward transactions to 100% of its net asset value.

(5) In paragraph (4), the competent authority in an EEA state is the authority designated in accordance with Article 97 of Council Directive 2009/65/EC in relation to that fund.

The genuine diversity of ownership condition

75

(1) The genuine diversity of ownership condition is met if the fund meets,or, in relation to a fund constituted by a class of interests in the main arrangements, the main arrangements meet, conditions A to C throughout the period of account.

(2) Condition A is that the fund produces documents, available to investors and to HMRC, which contain—

(a) a statement specifying the intended categories of investor,

(b) an undertaking that interests in the fund will be widely available, and

(c) an undertaking that interests in the fund will be marketed and made available in accordance with the requirements of paragraph (4)(a).

(3) Condition B is—

(a) that the specification of the intended categories of investor do not have a limiting or deterrent effect, and

(b) that any other terms or conditions governing participation in the fund do not have a limiting or deterrent effect.

(4) Condition C is—

(a) that interests in the fund must be marketed and made available—

(i) sufficiently widely to reach the intended categories of investors, and

(ii) in a manner appropriate to attract those categories of investors, and

(b) that a person who falls within one of the intended categories of investors can, upon request to the manager of this fund, obtain information about the fund and acquire units in it.

(5) A fund also meets the genuine diversity of ownership condition if—

(a) an investor in the fund is an offshore fund, an open-ended investment company or an authorised unit trust scheme (“the feeder fund”),

(b) conditions A to C are met in relation to the fund after taking into account—

(i) the fund documents relating to the feeder fund, and

(ii) the intended investors in the feeder fund, and

The genuine diversity of ownership condition: further provisions

76

(1) For the purposes of regulation 75(3) a limiting or deterring effect means an effect which—

(a) limits investors to a limited number of specific persons or specific groups of connected persons, or

(b) deters a reasonable investor falling within one of the intended categories of investor from investing in the fund.

(2) Condition C (see regulation 75(4) shall be treated as being met even if at the relevant time the fund has no capacity to receive additional investments, unless—

(a) the capacity of the fund to receive investments in it is fixed by the fund documents (or otherwise), and

(b) a pre-determined number of specific persons or specific groups of connected persons make investments in the fund which collectively exhausts all, or substantially all, of that capacity.

(3) For the purposes of this regulation—

(a) sections 993 and 994 of ITA 2007 (connected persons) apply in the case of a person chargeable to income tax, and

(b) section 839 of ICTA (connected persons) applies in the case of a person chargeable to corporation tax.

Clearances in relation to the equivalence and genuine diversity of ownership conditions

Who may apply for clearance

77

(1) The following may apply for clearance that the fund meets the equivalence condition and the genuine diversity of ownership condition—

(a) the manager of an eligible offshore fund;

(b) the manager of a non-reporting fund who makes an application under regulation 52.

(2) If it is proposed to establish an offshore fund which, on its establishment, is to be an eligible offshore fund, the applicant may apply for clearance that the fund will meet the equivalence condition and the genuine diversity of ownership condition on its establishment.

Procedure for obtaining clearance

78

(1) The relevant person specified in regulation 77 (the “relevant person”) must apply in writing to HMRC for clearance that the fund meets the equivalence condition and the genuine diversity of ownership condition.

(2) A document submitted in accordance with paragraph (1) must be accompanied by the documents specified in regulation 75(2).

(3) HMRC may require the relevant person to provide further particulars if HMRC believe that full particulars of the fund have not been provided.

(4) HMRC must notify the relevant person within 28 days beginning with the day on which HMRC receive the documents mentioned in paragraphs (1) and (2) (or, as the case may be, the further particulars mentioned in paragraph (3))—

(a) giving clearance that the fund meets the equivalence condition and the genuine diversity of ownership condition,

(b) giving that clearance subject to conditions, or

Circumstances in which clearance may not be relied upon

79

(1) An offshore fund (and investors in that fund) may not rely on a clearance given under regulation 78 if any of conditions A to D is met.

(2) Condition A is that at the beginning of the first period of account of the fund to which the clearance relates (and at the beginning of each subsequent period of account), a relevant statement in the instrument constituting the fund or in its prospectus in issue for the time being is not in accordance with a relevant statement in the documents considered by HMRC before giving clearance.

(3) Condition B is that the fund is operated otherwise than in accordance with condition C of the genuine diversity of ownership condition (see regulations 75 and 76).

(4) Condition C is that the fund acts or is operated in contravention of a relevant statement in the instrument constituting the fund or in its prospectus.

(5) Condition D is that the documents specified in regulation 75(2) are materially amended.

(6) Condition D does not apply if the relevant person specified in regulation 77 has obtained a clearance given under regulation 78 which applies to the documents in their amended form.

(7) For the purposes of condition D, a material amendment is one that may reasonably be construed as causing, or likely to cause, the fund to fail to meet the equivalence condition or the genuine diversity of ownership condition in relation to any period of account.

Investment transactions carried out by diversely owned funds

Treatment of investment transactions carried out by diversely owned funds

80

(1) This regulation applies if a diversely owned fund carries out an investment transaction in an accounting period.

(2) The investment transaction is treated as a non-trading transaction.

(3) For the purposes of these Regulations an “investment transaction” is an investment transaction specified by regulation 2 of the Investment Transactions (Tax) Regulations 2014.

Meaning of “investment transaction”

81

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “relevant contract”: general

82

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “relevant contract”: options

83

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “relevant contract”: futures

84

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Options and futures: further provisions

85

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “relevant contract”: contracts for differences

86

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interpretation of regulation 81(c)

87

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “units in a collective investment scheme”

88

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “transaction in a carbon emission trading product”

89

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CHAPTER 7 — REPORTS TO PARTICIPANTS

Report to participants for a reporting period

90

(1) A reporting fund must make a report available to each relevant participant for each reporting period.

(2) For the purposes of these Regulations a report is made available if the fund—

(a) sends the report to a relevant participant by post,

(b) sends the report to a relevant participant by means of an electronic communications service,

(d) publishes the report in a newspaper which is published in English in the United Kingdom and readily available in all parts of the United Kingdom.

(3) In this regulation “relevant participants” means participants who—

(a) are resident in the United Kingdom, or

(b) are reporting funds,

during any part of the reporting period.

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