IFM10245 - Exempt unauthorised unit trust (EUUT): interests in offshore non-reporting funds

Disposal of interest in offshore non-reporting fund: reporting condition – regulation 22

Under regulation 22 of the UUT regulations (SI 2013/2819), where an EUUT realises a gain on disposal of an interest in a non-reporting offshore fund, such a gain is an offshore income gain chargeable to income tax. An EUUT will usually account for such a realised gain as a capital item for which no relief is available as a deemed payment (see IFM10260).

However, where an EUUT satisfies the “reporting condition” throughout its period of ownership of an interest in a non-reporting fund, any gain on disposal of that interest will not be charged to tax. An EUUT satisfies the reporting condition where the trustees prepare computations of the reportable income of the non-reporting fund and include the excess of any reportable income over distributions received in the amount shown in the accounts of the EUUT as income available for distribution or for investment.

It is possible that the reporting condition might not have been met in the past but can be met in the future. The trustees must specify the date they began to meet the reporting condition in their return and they are treated as having disposed of and immediately reacquired the interest on that date. The trustees may realise an offshore income gain at that time, but any subsequent gain on disposal of the interest will not be charged to tax provided the reporting condition continues to be satisfied.

Disposal of interest in offshore non-reporting fund: qualifying index – regulation 23

No tax is charged on the trustees of an EUUT on any gain on disposal of an interest in a non-reporting fund where the EUUT:

• Aims to match the performance of a qualifying index;
• Has an interest in an offshore non-reporting fund with the main purpose of matching the qualifying index; and
• The capital and income returns of the EUUT match the qualifying index as closely as practicable.

A qualifying index is one based solely on the value of securities listed on a recognised stock exchange or admitted to trading on a regulated market. The index must be recognised by an authority (in the UK or elsewhere) on the basis that its composition is sufficiently diverse, it represents an adequate benchmark for the market to which it relates and is published in such a way that it is widely available. In addition the index must be calculated and published by a body that is managed independently from the management of the EUUT.