Background
Part 1 of Schedule
32.Under current legislation, the definition of an investment in an offshore fund is based on the regulatory definition of a collective investment scheme as set out in the Financial Services and Markets Acts 2000, with modifications for tax purposes.
33.The new definition of an “offshore fund” uses a characteristics based approach which has been the subject of extensive consultation.
Part 2 of the Schedule
34.Under current legislation, for the purpose of tax on chargeable gains, units in a unit trust are treated as if they were shares in a company. However, rights in funds in foreign jurisdictions which are not companies, unit trusts or partnerships (mostly those constituted by contractual arrangements) are often treated differently depending on the structure of those funds.
35.If such a fund comes within the revised definition of an “offshore fund”, a new section of TCGA 1992 will apply similar treatment to rights in such funds subject to transitional rules set out in the details above.
36.Partnerships will not be affected as they will be specifically excluded from the definition of offshore funds.
New tax regime to be in regulations
37.In addition to the new definition of “offshore fund”, the Government has announced that a new tax regime to be set out in regulations will start from 1 December 2009. Regulations will be made under powers in FA 2008 (as amended by this Schedule) which will apply to offshore funds as defined by this Schedule. Draft regulations have been published and have been the subject of consultation and will be further updated to reflect the new definition. The first set of the regulations will be subject to the affirmative procedure. The affirmative procedure is used for substantial and important portions of delegated legislation on which a high degree of scrutiny is sought.
38.The draft regulations will be updated to provide specific exceptions to ensure that there will be no double taxation where investors’ interests in offshore funds are subject to tax as income under other tax provisions.
