IFM02420 - What is a Fund Investing in Non-Reporting Offshore Funds (FINROF)?

A FINROF is an authorised investment fund (AIF) which either:

  • Meets the investment condition (see below) in regulation 85D of SI 2006/964; or
  • Has elected to enter the FINROF regime (see regulation 85F).

The investment condition

An AIF has met the investment condition if more than 50% of its investments (by gross asset value) are in non-reporting offshore funds and FINROFs.

For the purpose of this test certain investments are not included as interests in a non-reporting fund (see regulation 85E):

  • An interest in a transparent non-reporting fund, subject to certain criteria; and
  • An interest in a non-reporting fund where the AIF is able to establish the amount of income in the fund which has arisen to investors.

Within 3 months of the date an AIF met the investment condition and became a FINROF it must notify HMRC (regulation 85H) and investors (regulation 85I). There are penalties for failure to notify either.

If an AIF inadvertently fulfils the investment condition, then it may be treated as never having met the condition provided:

  • It tells HMRC as soon it became aware it has inadvertently met the investment condition;
  • It takes steps to ensure it no longer meets the investment condition within 4 months of the date it inadvertently met the condition; and
  • HMRC gives notice that the fund is treated as never having met the condition.

HMRC may refuse to treat the fund as never having met the condition. The AIF may appeal against that decision to the First-tier Tribunal and the Tribunal may uphold or set aside HMRC’s decision (see regulations 85J and 85K).

Electing to be a FINROF

If an AIF does not meet the investment condition it can elect to be a FINROF, provided it has satisfied any necessary regulatory approval (see regulation 85F).

An election must be made in writing to HMRC and specify a date from which the AIF will enter the FINROF regime. That date must be no more than three months before the date of the election.

The fund must notify all its investors that it is a FINROF within 3 months of the date it entered the regime. There are penalties for failure to notify investors.