Deloitte director of investment and pensions consulting Stuart Davies says there is a clear intent to close a loophole on the taxation of offshore income gains.
He says: “At the moment, income gains arise on ‘rolled up’ gains. An investor can be non UK resident for as little as one complete tax year to avoid tax on these gains. In future, it is intended that investors will need to be non-resident for five complete tax years, bringing the tax position into line with the taxation of capital gains. This will have a particular impact for advisers and investors who use offshore roll-up funds to defer UK tax, perhaps until they expect to be outside of the UK.”
Davies says another another key objective of the consultation is to propose a new method of defining offshore funds for UK tax purposes.
He says: “The paper introduces the idea of advance election to give certainty and bring taxation of deemed distributions in line with UK funds. Essentially, the new definition of a ‘reporting fund’ will be equivalent to the existing definition of ‘distributor funds’ with some minor relaxation in the qualification rules. This latter point is not likely to have material impact for most investors in retail funds. The change to the tax treatment, described above however, could be very significant for some investors.”