IFM13410 - Offshore Funds: participants in offshore funds: the charge to tax on disposal of an interest in a non-reporting fund: overview

Offshore income gains

When there is a gain on the disposal of an interest in an offshore fund then there may be a charge to income tax or to corporation tax on the amount of the gain which is treated as income.

For the meaning of ‘disposal’ see IFM13200 and IFM13300. Note that the meaning, whilst derived from that used in the Taxation of Chargeable Gains Act 1992 (TCGA), is wider than used in that Act and, in particular, includes the death of the participant holding an interest (see IFM13383).

In general, the charge to tax is incurred when the disposal is of an interest in an offshore fund that is a non-reporting fund or is one that, at any time during the period when the interest has been held, had been a non-reporting fund. However, there are exceptions which include cases where tax is chargeable under the other provisions of the taxes Acts.

The following pages give details of the calculation of the gain and the charge to tax.

Interaction with capital gains

Where there is a charge to tax on an offshore income gain, then the amount charged to tax is deducted from the disposal proceeds for the purpose of calculating any capital gain so that any gain is not taxed twice (regulation 45 - see IFM13450 onwards). In cases where there is an offshore income gain this will generally reduce the capital gain to nil.

Losses

Where there is a loss on disposal then the gain for the purposes of tax on an offshore income gain is nil; that is there is no recognition of losses for the purposes of these regulations (regulation 42). Accordingly, in a case where there is also a disposal for the purposes of TCGA, any loss made (calculated in accordance with that Act) may be treated as a capital loss for the purposes of TCGA.