Ministers aim to simplify the tax regime for British offshore investors and funds, according to a discussion paper published last week.
A key proposal is the removal of restrictions that limit the extent to which distributing funds can invest in non-distributing funds. This affects funds of funds investing in underlying funds. At present they must be at least 95% invested in funds that distribute all of their income.
The tax regime for offshore funds was introduced in 1984, but the discussion paper concedes that the fund marketplace has changed significantly since then. In October 2006, the government announced that it would consult with industry to ensure British tax rules in the offshore tax regime do not act as a barrier to the commercial development of multi-tiered funds.
Jonathan Marsh, a partner at Berwin Leighton Paisner, says the proposals are a welcome development. “You have to modernise,” he says. “[It’s about] removing UK tax barriers. The removal of barriers for UK investors so that they can use and invest in offshore funds is key to making this work. It’s looking to improve the tax treatment of UK investors investing in offshore funds.”
Another key proposal is to make the way in which offshore funds apply for UK distributor status more forward-looking. At present, offshore funds must apply every year, but only after their annual accounts are done.