Offshore funds and capital gains tax
The measure
The Chancellor intends to introduce legislation in this year's Finance Bill that will treat certain offshore funds as taxable for capital gains tax purposes. Gains of these funds would otherwise be treated as taxable in the hands of their investors. As a result the investors will not be required to consider disposals of underlying investments in the fund.
The types of fund for which this will apply are those which are typically constituted by contractual arrangements in foreign jurisdictions. It will not apply to companies, unit trusts or partnerships.
Who is affected?
Investors in certain contract-based offshore funds that are currently treated a being transparent so that the income and capital gains in the fund are treated as being the investors.
When?
The changes will apply to investments on or after 1 December 2009. There will be the ability to elect into the regime on or after 22 April 2009. The election could be made retrospectively back to 2003/4.
Until the legislation is published it is difficult to evaluate how beneficial this proposal will be. However, by avoiding the need to calculate underlying gains it could be a welcome simplification in certain cases.
