Historically, offshore funds have been used as investment
vehicles to minimise the impact of UK tax by keeping income
profits offshore.
The UK's offshore funds rules were introduced in
1984 to ensure rolled-up income was taxed as income, not gains,
when there was a substantial difference in tax rates. As such,
it has not been tax efficient to hold offshore funds in certain
areas. However, if an offshore fund meets certain annual
distribution tests, such as distributing all or most of its
income, it can be classed as a 'distributing
fund'.
This distributor status offers better tax treatment, as the
gains arising on the disposal of a fund can be treated as
capital rather than income. To qualify, an offshore fund has to
pay a minimum of 85% of its net income to UK investors and
obtain an annual certification from HM Revenue & Customs
(HMRC). But obtaining distributor status is complicated. Thus
