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The UK’s offshore funds regime and reporting fund status (‘RFS’)

Do you have an open-ended, non-UK corporate fund (‘Offshore Fund’) marketed to UK individual investors, funds of funds or UK companies?

UK tax resident and domiciled individual investors with interests in an Offshore Fund will be taxed under income tax rules at rates of up to 45% when they dispose of their investment, crystallising an ‘Offshore Income Gain’. Such investors are only able to benefit from preferential capital gains tax rates of up to 20% when they redeem, if the class of interest for which they subscribed has been certified as a reporting fund throughout the duration of their investment.

In order to comply with the regime, once a share class or series has successfully applied to HMRC for certification and obtained RFS, annually within six months of the year end of the fund, a reportable income calculation (net of relevant expenses) is required to be computed, with reports being made available to both investors and HMRC. To the extent any ‘Excess Reportable Income’ arises, investors are required to pay tax on their share. Often there is nil Excess Reportable Income due to allowable expenses (e.g. management fees) that offset against income of the fund.

Obtaining RFS and remaining compliant with the regime is particularly advantageous for funds with investment strategies that give rise to significant capital returns.

Changes made to the UK’s ‘non-dom’ regime for income tax and capital gains tax purposes (becoming deemed UK-dom), means that long term UK tax resident individual investors are no longer able to benefit from the UK’s remittance basis of taxation. Historically, such classes of investors in an Offshore Fund would have been less concerned with crystallising an Offshore Income Gain, as they would not have remitted sums to the UK. Obtaining RFS and remaining compliant with the regime, will be particularly attractive for deemed UK-doms to enable them to access lower rates of capital gains tax.

Other investors who may benefit from the regime include funds of funds with RFS in their own right and UK companies.

What should I do? 

For funds with a year end of 30 November 2019 or 31 December 2019, the reporting deadline to both investors and HMRC is 31 May 2020 and 30 June 2020, respectively. If you need assistance with your reporting requirements, please contact us as soon as possible via the form below. 

Please also speak to us about applying for RFS. We would be delighted to assist you with a staged process. 

  1. Consideration of whether your fund is structured appropriately and eligible to access the regime.
  2. Consideration of whether obtaining RFS for your fund’s particular investment strategy is beneficial. 
  3. Initial application to HMRC for relevant share classes and series to become reporting funds.
  4. Annual compliance with the regime within six months of the fund’s year end, including the reportable income calculations and making reports available to investors and HMRC.

Get in touch

About the author

Antoine Housden

+44 (0) 7923 222 415
housdena@buzzacott.co.uk
LinkedIn

UK tax resident and domiciled individual investors with interests in an Offshore Fund will be taxed under income tax rules at rates of up to 45% when they dispose of their investment, crystallising an ‘Offshore Income Gain’. Such investors are only able to benefit from preferential capital gains tax rates of up to 20% when they redeem, if the class of interest for which they subscribed has been certified as a reporting fund throughout the duration of their investment.

In order to comply with the regime, once a share class or series has successfully applied to HMRC for certification and obtained RFS, annually within six months of the year end of the fund, a reportable income calculation (net of relevant expenses) is required to be computed, with reports being made available to both investors and HMRC. To the extent any ‘Excess Reportable Income’ arises, investors are required to pay tax on their share. Often there is nil Excess Reportable Income due to allowable expenses (e.g. management fees) that offset against income of the fund.

Obtaining RFS and remaining compliant with the regime is particularly advantageous for funds with investment strategies that give rise to significant capital returns.

Changes made to the UK’s ‘non-dom’ regime for income tax and capital gains tax purposes (becoming deemed UK-dom), means that long term UK tax resident individual investors are no longer able to benefit from the UK’s remittance basis of taxation. Historically, such classes of investors in an Offshore Fund would have been less concerned with crystallising an Offshore Income Gain, as they would not have remitted sums to the UK. Obtaining RFS and remaining compliant with the regime, will be particularly attractive for deemed UK-doms to enable them to access lower rates of capital gains tax.

Other investors who may benefit from the regime include funds of funds with RFS in their own right and UK companies.

What should I do? 

For funds with a year end of 30 November 2019 or 31 December 2019, the reporting deadline to both investors and HMRC is 31 May 2020 and 30 June 2020, respectively. If you need assistance with your reporting requirements, please contact us as soon as possible via the form below. 

Please also speak to us about applying for RFS. We would be delighted to assist you with a staged process. 

  1. Consideration of whether your fund is structured appropriately and eligible to access the regime.
  2. Consideration of whether obtaining RFS for your fund’s particular investment strategy is beneficial. 
  3. Initial application to HMRC for relevant share classes and series to become reporting funds.
  4. Annual compliance with the regime within six months of the fund’s year end, including the reportable income calculations and making reports available to investors and HMRC.

Get in touch

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