IFM17370 - Particular considerations relating to closed-ended funds

The GDO condition as set out in Regulation 75 of SI 2009/3001 originally applied only to certain forms of reporting offshore funds. The cross referencing to Regulation 75 in other regimes is such that it now applies across a broad range of tax regimes – see IFM17200.

Whilst offshore funds that seek to rely on meeting the GDO condition will typically be open-ended in nature (i.e. funds which can issue or redeem shares/units at any time by reference to the underlying net asset value of the fund), funds seeking to rely on the GDO condition in other contexts, such as the QAHC regime, NRCG rules or REIT rules, are more likely to be closed-ended (typically, funds with a defined capital raising period and no right for investors to redeem their interests before the liquidation of the fund).

In general, HMRC considers that a closed-ended fund is equally as capable as an open-ended fund of satisfying the GDO condition, provided it has been appropriately marketed in a manner which complies with Condition A (IFM17310), Condition B (IFM17320) and Condition C (IFM17330).

In particular, none of the following features which may be present in a closed-ended fund should (either by themselves or in combination) prevent the GDO condition being satisfied in relation to the fund:

• A closed-ended fund may be ‘seeded’ by one or more cornerstone investors. See IFM17335 which confirms that this would not prevent Condition C in Regulation 75(4) being satisfied at any time as long as there is at that time a clear intention to subsequently market and make available the fund to the intended categories of specified investors.
• Closed-ended funds will typically have limitations on their investment capacity, including de minimis commitment thresholds and a cap of total aggregate commitments (typically referred to as a ‘hard cap’). Such restrictions should not cause Condition B in Regulation 75(3) to be failed provided they are general in nature and do not have a limiting or deterrent effect of the type described in IFM17320.
• Marketing for a closed-ended fund will typically cease following its ‘final close’ – i.e. at the end of its defined fundraising period. See IFM17345 which describes a relaxation of Condition C where a fund has no capacity to receive additional investments – this relaxation may apply in these circumstances.
• Where a fund manager launches a successor fund, marketing may be limited to asking investors in the prior fund to reinvest into the successor fund. See IFM17335 which confirms that marketing activity which consists solely of discussions with existing investors is capable of satisfying Condition C in Regulation 75(4).