Her Majesty's Revenue and Customs (HMRC) on Friday published a set of partial draft regulations regarding changes to offshore funds regulations for comment, and to show the intended use of the powers in clauses 38 and 39 of the Finance Bill 2008.
In October 2007, the Government published a discussion paper setting out its proposals for modernising the offshore funds tax regime.
The partial draft regulations are intended to give effect to the policy set out in those documents, and HM Revenue & Customs has stated that it welcomes comments on this set of partial draft regulations, in particular whether the draft regulations achieve the policy intentions as set out in HMT’s publications.
The UK tax regime for offshore funds was introduced in 1984.
Broadly, its purpose was to establish the tax treatment of activities that seek to use certain offshore funds to convert income flows into capital gains.
Prior to its introduction, a UK investor could accumulate income in an offshore fund, and, when the investment was realised, be subject only to tax on capital gains rather than having to pay tax on income.
In contrast a combination of regulatory and tax rules meant that UK investors had to pay tax annually on income from UK funds. The purpose of the regime remains the same.
A comprehensive report in our Intelligence Report series examining offshore investment, offshore stock exchanges, trusts and hedge funds is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report9.asp
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