Offshore Funds Welcome UK Tax Overhaul Plans

by Amanda Banks, Tax-News.com, London

23 April 2002

The Financial Times has reported a positive response from the offshore funds industry to suggestions that the UK Chancellor is planning to overhaul the tax treatment of overseas funds.

Currently, the UK Inland Revenue distinguishes between 'distributor funds' (which must distribute 85% of fund income, are restricted in their choice of investments, but are approved by the tax authority), and 'roll-up' funds (which do not pay out annual income, but roll up gross income, and are taxed more harshly).

UK residents investing in the latter are obliged to pay income tax on profits when they cash in their funds. However, if the gains were taxed as capital gains instead, private investors in the United Kingdom could make effective use of allowances to minimise CGT, and organisations such as pension funds, investment trusts, and unit trusts would escape the tax completely.

The FT revealed that the Inland Revenue is due to release a consultation document to the industry, asking whether the tax rules on overseas funds should be retained, amended, or abolished. Many offshore fund managers are said to be pushing for equalisation of the tax treatment for all overseas funds.

'If the current regime were abolished it would provide a big commercial advantage to fund managers, and it could make a 20% difference to an investor's tax rate,' Ed Venner, senior tax manager at accounting firm RSM Robson Rhodes, explained to the FT on Friday.

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