The current offshore fund reporting regime was introduced in
2009 to replace the distributing fund regime. As with its
predecessor, the primary purpose of the offshore reporting fund
regime is to remove scope for UK investors to roll up income in
offshore funds with the intention of this being taxed as capital
upon the eventual disposal of their investment.
Under the previous regime, the distributing fund regime, the
fund was required to distribute a certain level of income, whereas
the current regime is more flexible in that participating offshore
funds have no such obligations imposed on them. Instead investors
are taxed on income received by the fund throughout the duration of
their investment, regardless of whether it is actually distributed,
the upside then being that the true capital element of any gain
arising on disposal is taxed as such. This is in contrast to the
default position for non-participating funds where gains realised
on disposal of investments
