IFM13478 - Offshore Funds: investors in non-reporting funds: exceptions to the charge to tax: unlisted trading company exception

Regulation 31A to 31C of SI 2009/3001

Amendments to the offshore fund regulations enacted in 2011 provided a further exception to the charge to tax arising under regulation 17.

No liability to tax will arise where conditions A to D are met as follows:

A. there is a disposal of an interest in an offshore fund

B. the sole or main purpose of the fund is to invest in qualifying companies

C. the fund met the investment condition throughout the period between when the interest in the fund was acquired and 12 months before the date of disposal. The fund will also meet this condition, in relation to a period at the beginning of the fund’s existence, if at commencement the fund only holds cash and is then able to meet the investment condition within the first 3 month period.

D. the participants have access to, and are able to obtain, copies of, sufficient information to demonstrate that the fund intends to dispose of any interests in holdings of the type listed at (b) and (d) of the investment condition (see details below).

The investment condition

The investment condition is that at least 90% of the value of the assets of the fund consisted of:

  • direct or indirect holdings in qualifying companies,

  • holdings of shares or securities listed on a recognised stock exchange or admitted to trading on a regulated market which the fund intends to dispose of as soon as reasonably practicable, taking into account market conditions and commercial and contractual constraints, and

  • which were acquired by the fund in exchange for shares or securities in a qualifying company, or

  • were shares in a qualifying company at the time of their acquisition by the fund,

  • holdings of shares or securities listed on a recognised stock exchange or admitted to trading on a regulated market, which are holdings in a company that would be a qualifying company if it were not so listed or admitted, where it is reasonable to believe that the shares or securities will cease to be so listed or admitted within 12 months,
  • shares or securities which have ceased to be within sub-paragraph (c) because it is no longer reasonable to believe that they will cease to be listed or admitted, which the fund intends to dispose of as soon as reasonably practicable taking into account market conditions and commercial and contractual constraints.

Meaning of qualifying company

A “qualifying company” means a trading company or the holding company of a trading group or subgroup, the shares of which are not listed on a recognised stock exchange or admitted to trading on a regulated market.

Further provision

Additionally, no liability will arise under regulation 17 if an offshore fund, whose business consists solely of holding an interest in another offshore fund, disposes of an interest in that offshore fund (X) and, in relation to X:

  • the sole or main purpose of the fund is to invest in qualifying companies
  • the fund met the investment condition throughout the period between when the interest in the fund was acquired and 12 months before the date of disposal. The fund will also meet this condition, in relation to a period at the beginning of the fund’s existence, if at commencement the fund only holds cash and is then able to meet the investment condition within the first 3 month period, and
  • the participants have access to, and are able to obtain, copies of, sufficient information to demonstrate that the fund intends to dispose of any interests in holdings of the type listed at (b) and (d) of the investment condition under regulation 31B.