SAIM6360 - Collective investment schemes: offshore funds: offshore income gains: equalisation
Equalisation
This charge is designed to overcome difficulties which funds
operating the type of arrangements described in CG57705 would
otherwise have experienced in obtaining distributing fund status.
Although described as an offshore income gain, the
equalisation charge actually consists of a portion of the gross
consideration received by an investor on the disposal of his
interest in a distributing fund operating equalisation
arrangements. It represents the element of fund income accruing to
the investor in respect of the accounting period of the fund in
which the disposal takes place, and which is either included in the
proceeds paid to the investor on the redemption or repurchase by
the fund of his shares or units, or would have been so included had
the disposal been to the fund.
The equalisation charge on accrued income is likely to be
quite small in relation to the total proceeds received by an
investor. The residual gain chargeable under the chargeable gains
rules may therefore be significant, particularly where the
investment has been held for a number of years.
Equalisation details returned by a taxpayer should be
accepted without enquiry. Where no such details are provided, but
the interest disposed of is in a distributing fund which is stated
on the Offshore Funds Centre’s list (
www.hmrc.gov.uk/offshorefunds/dist_fundlist.htm)
to have operated equalisation arrangements at the time of the
disposal, the taxpayer should be so advised and asked for details
of the amount included in the disposal proceeds in respect of
equalisation. Normally this is shown on the redemption voucher but
the taxpayer should be asked to approach the fund for the
information where it is not otherwise available. It is unlikely
that difficulty will be experienced in obtaining the necessary
information, since by definition the equalisation charge can only
arise in relation to a fund which has been certified as a
distributing fund, and it is expected that such funds will
co-operate in all matters resulting from a successful application
to the Board. If problems are encountered in determining the
equalisation gain, CT & VAT (Collective Investment Schemes)
will give whatever advice they can.
If an equalisation gain arises on the disposal of an interest
other than to a fund or its managers, and a distribution referable
to that interest is subsequently paid either to the person making
the disposal or to a person connected with him (as defined in
ICTA88/S839), the amount of that distribution is reduced for United
Kingdom tax purposes by the amount of the equalisation gain. If,
exceptionally, the equalisation gain exceeds the first such
subsequent distribution, the balance of the gain is set off against
later distributions until it has been fully exhausted. This relief
does not extend to a disposal to a third party.
