OSFG01040 - Applications for Distributing Fund Status

Does the Fund Fall Within the Legislation?

Note: Unless otherwise stated, all statutory references are to ICTA 1988 (Income and Corporation Taxes Acts 1988).

The key issues in deciding whether a fund is within the offshore funds provisions are the ‘character’ and ‘nature’ of the fund.

First and foremost it has to be a ‘collective investment scheme’ (which term is defined in section 235 Financial Services and Markets Act 2000) and that the form of the arrangements is within one of three broad categories

• an open-ended company that is resident outside the UK,
• a unit trust scheme whose trustees are not resident in the UK

or

• any arrangements, not within the two categories above, established under the law of a territory other than the UK and which, under that law, create rights in the nature of co- ownership.

From 19 July 2007, the definition of open-ended investment company for offshore fund purposes will be as set out in section 236 FSMA 2000 but without the restriction of the ‘reasonable period’ condition of section 236(3)(a) FSMA 2000.

HMRC issued guidance on this point on 17 May 2007 and an updated version of the guidance appears at OSFGAPP3 to this Guide.

An offshore fund is defined within tax legislation under sections 756A–C and, in addition to the above, an offshore fund will also include

• sub-funds of an umbrella fund, but not the umbrella fund itself
• classes of interest in a fund, but not the main fund itself.

Where a fund is fiscally transparent for income, it will only be treated as a distributing fund if it meets the relevant tests (see OSFG01110).

Applications for Distributing Fund Status

Applications for certification as a distributing fund should

• show that the fund is within the offshore funds provisions
• set out clearly and specifically all the information necessary to show that the relevant tests are met
• be supported by relevant documents
• be made within the appropriate time scale – within 6 months of the end of the account period
• be made for each account period for which certification is desired.

The information that HMRC seeks in connection with any application for distributing fund status is set out below ( OSFG01050).

There are two things worth remembering

• A fund has to apply for distributing fund status for each account period. If it fails to apply for, or obtain, distributing fund status for any one account period during which an investor owns a material interest, then on disposal of the interest that investor is liable to tax on any gain as income and not as a chargeable gain.
• Providing the full information in connection with an application first time is likely to reduce