IMA welcomes tax proposals for offshore funds
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The Investment Management Association has welcomed draft regulations that will change the tax treatment of investments by UK authorised funds in non-reporting offshore funds.
The Treasury has issued draft regulations for 20 per cent of tax to be removed from investments by UK authorised funds in non-reporting offshore funds from March, thereby levelling UK fund treatment with offshore funds.
Currently when a UK fund disposes of its investments in NROFs, the UK fund suffers corporation tax of 20 per cent on the entire gain - an “offshore Income gain”. Furthermore, when individual investors dispose of their shares/units of that UK fund, the investors may have to pay a further 18 per cent in capital gains tax. NROFs do not distribute or report their income to investors.
The IMA says the new rules will result in different types of investors having a tax outcome that is much closer to the position if they invest directly in NROFs or via another offshore fund.
IMA director of tax and authorised funds Julie Patterson says: “At present, many types of UK investors are disadvantaged if they invest in UK funds that invest in non-reporting offshore funds, compared with investing in such non-reporting offshore funds direct or via an offshore fund of funds. We therefore welcome these proposals, which have been drawn up in the context of the FSA’s consideration of ‘Funds of Alternative Investment Funds’, but which will apply to all authorised funds.”
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