FUNDAMENTAL changes to the offshore funds regime come into force in less than six weeks.
It follows more than two years of consultation by HMRC and the UK Government after the announcement in the 2007 Budget of the reform of the regime to address tax barriers.
HMRC’s aims include simplifying the regime, providing more certainty to UK investors and funds and strengthening anti-avoidance rules so that UK investors who choose to invest into offshore funds do so based on commercial decisions and not to obtain any intended tax advantage.
The new regulations will also replace the concept of UK distributor status with reporting fund status.
Dominic Rigby (pictured), senior manager of Ernst & Young’s Channel Islands tax team, said the changes aimed to bring about a ‘catch-all situation’.
‘It’s trying to align the treatment of UK investors who invest in offshore funds to those who have invested in onshore funds. The aim is to bring parity and to take away the perceived advantages of investing in offshore arrangements.
‘It’s less than six weeks until the new regulations come into effect and administrators and fund managers really need to be looking at these and how they will be affected, as there’s a lot to take on board in terms of very detailed regulations.’
Alongside tax director Neil Oliver, Mr Rigby was speaking to more than 100 delegates at an Ernst & Young breakfast seminar this week about the latest developments.
Subject to final technical and legal checks, the Offshore Funds (Tax) Regulations 2009 take effect from 1 December.
Other changes include a redefinition of what an ‘offshore fund’ is, and the taxation of UK investors on disposals in offshore funds that are outside the new rules at 40%, which becomes 50% from 6 April 2010, compared to those who are in the new reporting fund regime and charged capital gains tax at the now reduced flat rate of 18%.
And although the UK Government has been thorough with its drafting and consultation, changes can be expected once it is enforced, said Mr Rigby. ‘Once we get to the practical implementation of the regulations, it is likely that there will be some snagging issues above those already identified and we will see further changes.’
He was also confident about the impact it would have locally.
‘Rather than a loss of business the change will support the local funds industry by allowing them to manage a product which can be sold into the UK market.
‘Investors can also decide as to who is the best fund manager for their needs without different tax regimes being a factor in their
decision.’
Article posted on 22nd October, 2009 - 2.30pm
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