IFM14448 - The income distribution requirement: investments in offshore reporting funds

If an investment trust has an investment in one or more offshore reporting funds (see regulation 50 of the Offshore Funds (Tax) Regulations 2009 and IFM12000) then there may be a reduction in the amount of income that it is permitted to retain and / or a requirement to pay a dividend from its reserves.

In accordance with the AIC SORP an investment trust will account for dividends from an offshore reporting fund through the revenue column of its income statement. The offshore fund regulations require a reporting fund to send a report of the excess (if any) of the reported income of the fund over and above the dividends paid by the fund (the excess amount).

Regulation 21 of SI 2011/2999 applies where such an excess amount (which will not have been distributed by the reporting fund) has been accounted for by the investment trust through the capital column of its income statement in accordance with AIC SORP, or would have been if that Statement had been applied correctly.

Where that is the case, the amount that the company is permitted to retain is reduced by 85% of the excess amount. If that calculation results in a negative figure then the company is required to make a further distribution from its capital reserves equal to the deficit.

Example

A company has income calculated in accordance with regulation 20 of SI 2011/2999 amounting to £2,000,000. It has accounted for an excess amount of reported income from investments in offshore funds of £100,000 as capital.

Under regulation 19 of SI 2011/2999, the company would be permitted to retain up to £300,000 of its income. However, regulation 21 of SI 2011/2999 applies so that sum is reduced by £85,000 so that the amount which may be retained is £215,000.

The company must therefore make a dividend distribution of –

Income for the period less maximum retention: £1,700,000

Further distribution required by regulation 21: £85,000

Total distribution required: £1,785,000

The further distribution required as a result of regulation 21 must be made by the filing date for the accounting period in which the fund distribution date (see regulation 94 of the Offshore Funds Regulations) for the offshore reporting fund(s) in question falls.