IFM12144 - Offshore Funds: Overview of the offshore fund rules: overview of the regime for funds

Reporting funds

An offshore entity that meets the definition of an offshore fund (under S355 TIOPA 2010 - see IFM12210 onwards) can, on meeting certain conditions, apply to HMRC to be a ‘reporting fund’. The relevance of reporting fund status for UK investors is that gains realised on disposals of investments in reporting funds will, in most circumstances, be subject to tax on chargeable gains (see the detailed guidance on reporting funds at IFM12400 onwards for exceptions). Gains realised on disposals of investments in non-reporting funds will be subject to less favourable treatment as they will be charged to tax as income.

Reporting funds must prepare accounts in accordance with an acceptable accounting policy, and provide reports of their ‘reportable income’. This is the accounts figure for the total return of the fund adjusted in accordance with certain rules set out in the Regulations. They must provide reports to both HMRC, to include a computation showing their reportable income, and to participants (investors) that show their proportionate share of that income. In addition, reporting funds must make certain information available to HMRC when requested to do so.

Funds may apply for reporting fund status in advance or in arrears, subject to certain time limits - see IFM12420 for details. Once a fund has been granted reporting fund status, it may rely on that status going forward, subject to continued compliance with the reporting funds rules. This includes making reports as described above for each period of account. A fund may exit the reporting funds regime on giving notice to HMRC and to each participator (see IFM12800). There are also rules that permit HMRC to exclude a fund from the regime for serious breaches or for a number of minor breaches, subject to an appeals process (see IFM12700).

See IFM12146 for an overview of the treatment of UK investors in reporting funds.

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

Non-reporting funds

A non-reporting fund is any offshore entity that falls within the definition of an offshore fund but has not obtained reporting fund status (or has left or has been excluded from the reporting fund regime). In other words, it is an offshore fund to which Part 3 of the Offshore Fund (Tax) Regulations 2009 does not apply.

A non-reporting fund is under no obligation to provide information to HMRC but it is likely that such a fund will be obliged by local law or by its constitution to provide information to investors in respect of income arising to the fund. Although it is expected that it would provide details of distributions as a matter of routine to UK investors, it is the responsibility of the investors to obtain and record this information.

See IFM12146 for an overview of the treatment of UK investors in non-reporting funds.