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Alternative Investment Management Association Representing the global hedge fund industry

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UK Offshore Funds Regime

The UK’s offshore funds regime is a specific tax regime designed to counter arrangements that enabled a UK taxable investor to accumulate income in a non-UK resident (i.e. offshore) fund free of tax and, when its investment was realised, be subject to capital gains tax on any gain. This can be compared with UK investors in UK funds who, effectively, had to pay tax annually on income from the funds.

Broadly, the rules provide that, unless certain conditions are met, any gains realised by UK investors in an offshore fund will be taxed as income (and therefore taxed at income tax rates) rather than gains (at capital gains tax rates). Any losses remain capital losses.

The offshore funds regime was introduced in 1984, with the most recent overhaul occurring in 2009 (moving from a ‘distributing fund’ regime to a ‘reporting fund’ regime). As it currently stands, the reporting fund regime sits alongside the offshore funds rules and provides that, if an offshore fund satisfies the conditions to be registered as a reporting fund, any realised gain made by a UK investor on a reporting fund will be taxed as a capital gain, at capital gains tax rates.


Key legislative documents

The Offshore Funds (Tax) Regulations  (November 2009)


AIMA documents

Submission - Residence of Offshore Funds (September 2013)

Residence of Offshore Funds - AIMA Response - HMRC

Submission - ability of alternative investment funds to be Equivalent Offshore Funds (November 2009)

Response to HM Revenue and Customs' consultation on draft guidance notes - The Offshore Funds (Tax) (Amendment) Regulations (October 2009)

Further submission - genuine diversity of ownership condition (July 2009)

Response to HM Revenue and Customs' draft guidance - definition of 'offshore fund' (July 2009)

Submission - genuine diversity of ownership condition (June 2009)

Response to HM Treasury's consultation paper - Offshore Funds: further steps (February 2009)


Equalisation

Following consultation on draft amendments and to address equalisation and other issues raised by AIMA and others with HMRC, The Offshore Funds (Tax) (Amendment) Regulations 2011were made and came into force on 27 May 2011.


Key legislative documents

Offshore Funds (Tax) (Amendment) Regulations 2011 (May 2011)

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      1. AIFMD
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        1. ETFs and Structured UCITS
      5. Venture Capital
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    2. US Hedge Fund Adviser Regulations
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      1. Solvency II
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      1. BEPS
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      6. High Frequency Trading
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      11. Trading
      12. UK Partnership Tax Review
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