UK tax resident and domiciled individual investors with interests in an Offshore Fund will be taxed under income tax rules at rates of up to 45% when they dispose of their investment, crystallising an ‘Offshore Income Gain’. Such investors are only able to benefit from preferential capital gains tax rates of up to 20% when they redeem, if the class of interest for which they subscribed has been certified as a reporting fund throughout the duration of their investment.
In order to comply with the regime, once a share class or series has successfully applied to HMRC for certification and obtained RFS, annually within six months of the year end of the fund, a reportable income calculation (net of relevant expenses) is required to be computed, with reports being made available to both investors and HMRC. To the extent any ‘Excess Reportable Income’ arises, investors are required to pay tax on their share. Often there is nil Excess Reportable Income due to allowable expenses (e.g. management fees) that offset against income of the fund.
Obtaining RFS and remaining compliant with the regime is particularly advantageous for funds with investment strategies that generate significant capital returns.
Previous changes to the non-dom regime introduced the ‘deemed UK domicile’ status under the current tax legislation. However, in the Spring budget earlier this year, the chancellor announced the abolition of the non-dom regime altogether, from April 2025.
This shift will mean that UK tax-resident individual investors will no longer be able to benefit from the UK’s remittance basis of taxation. Historically, such classes of investors in an Offshore Fund would have been less concerned with crystallising an Offshore Income Gain, as they would not have remitted sums to the UK.
Obtaining RFS and remaining compliant with the regime, will be particularly attractive for deemed UK-doms to enable them to access lower rates of capital gains tax.
Unfortunately there have been very few details published since the spring budget, and with the upcoming UK General Election, there could be further changes on the horizon.
Other investors who may benefit from the regime include funds of funds with RFS in their own right and UK companies.
UK tax resident and domiciled individual investors with interests in an Offshore Fund will be taxed under income tax rules at rates of up to 45% when they dispose of their investment, crystallising an ‘Offshore Income Gain’. Such investors are only able to benefit from preferential capital gains tax rates of up to 20% when they redeem, if the class of interest for which they subscribed has been certified as a reporting fund throughout the duration of their investment.
In order to comply with the regime, once a share class or series has successfully applied to HMRC for certification and obtained RFS, annually within six months of the year end of the fund, a reportable income calculation (net of relevant expenses) is required to be computed, with reports being made available to both investors and HMRC. To the extent any ‘Excess Reportable Income’ arises, investors are required to pay tax on their share. Often there is nil Excess Reportable Income due to allowable expenses (e.g. management fees) that offset against income of the fund.
Obtaining RFS and remaining compliant with the regime is particularly advantageous for funds with investment strategies that generate significant capital returns.
Previous changes to the non-dom regime introduced the ‘deemed UK domicile’ status under the current tax legislation. However, in the Spring budget earlier this year, the chancellor announced the abolition of the non-dom regime altogether, from April 2025.
This shift will mean that UK tax-resident individual investors will no longer be able to benefit from the UK’s remittance basis of taxation. Historically, such classes of investors in an Offshore Fund would have been less concerned with crystallising an Offshore Income Gain, as they would not have remitted sums to the UK.
Obtaining RFS and remaining compliant with the regime, will be particularly attractive for deemed UK-doms to enable them to access lower rates of capital gains tax.
Unfortunately there have been very few details published since the spring budget, and with the upcoming UK General Election, there could be further changes on the horizon.
Other investors who may benefit from the regime include funds of funds with RFS in their own right and UK companies.
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