IFM13420 - Offshore Funds: participants in offshore funds: the charge to tax on disposal of an interest in a non-reporting fund: non-resident settlements

Offshore income gains arising in non-resident settlement structures

As the trustees are non-UK resident they are not chargeable on an offshore income gain that arises to them or to an underlying non-UK resident company. Instead there are rules that can attribute the offshore income gain to a settlor or beneficiary of the trust.

The total amount of offshore income gains arising to the settlement in a tax year is designated as ‘the OIG amount’. For each year of assessment, the OIG amount can result in an offshore income gain being treated as arising to a settlor or beneficiary in the following ways:

• Firstly consider if the OIG amount can be attributed to beneficiaries of the settlement as offshore income gains in accordance with section 87 TCGA as if it were an amount chargeable to capital gains tax calculated under section 2(2) of that Act (regulation 20(2) - see OFM15620). (Part 1 of TCGA 1992 was rewritten by the Finance Act 2019 and the reference is now to the section 1(3) amount.)
• Secondly consider if the OIG amount can be attributed to a settlor or beneficiaries of the settlement as offshore income gains in accordance with the Transfer of Assets rules in Chapter 2 Part 13 ITA. This only applies to the extent the OIG amount has not already been attributed in accordance with section 87 TCGA attribution rules to a person who is resident or ordinarily resident in the UK (regulation 21 - see OFM15700).
• Any OIG amount that is not attributed in accordance with the first two bullet points above is carried forward and the same procedure applies in the next and subsequent tax years.

An offshore income gain arising to a non-resident settlement is not treated as income of the settlor under Chapter 5 Part 5 ITTOIA (regulation 20(1)).