Offshore fund advice
We can assist with fund structuring and ongoing tax issues related to funds and investment vehicles. In particular we can advise you on the following issues:
Investment manager exemptions
An offshore fund’s activities may give rise to a UK tax liability through the activities of its UK representatives, being its investment manager. The Investment Manager Exemption (IME) provides a tax exemption so that such charges do not arise, subject to the manager meeting certain requirements. Meeting the IME requirements are therefore essential for an investment manager seeking to protect the tax integrity of the fund. Some of the key tests are:
- Whether there is a trade – the liability arises in relation to trading funds, not investment funds
- Independent capacity and customary remuneration – the manager must operate on arm’s length basis from the fund and receive customary remuneration
- 20% test – the manager and persons connected with them must not be entitled to more than 20% of the income in the fund. This test can be difficult for managers to meet in certain circumstances
Kinetic Partners has significant experience in structuring new managers to ensure that IME tests are met. We also assess the structure of already established arrangements, assess compliance and make recommendations for adding robustness to the arrangements. We will liaise with investors, auditors and regulators on our clients’ behalf in discussing compliance with the IME.
Through our services you will have better industry insight into the application of the exemption, the tax integrity of your fund will be protected and you will know practical solutions to potential problem areas.
Reporting fund status
Obtaining UK reporting fund status is an important consideration for any offshore fund seeking to attract UK investors. Unless an offshore fund is certified as a reporting fund, UK individual investors will be subject to income tax on any gains on their investment, paying tax at up to 50% rather than accessing capital gains tax rates.
The regime requires offshore funds to report the income attributable to their investors on an annual basis. The managers will have to ensure that a report detailing reportable income upon which investors will be subject to income tax, is available to investors and HMRC within six months from year end.
Kinetic Partners has extensive experience with offshore fund legislation. We can advise you on whether obtaining certification will be beneficial for investors, advise on amendments to fund documentation and assist with the operation of the deemed disposal provisions where necessary. We prepare and collate documents, and liaise with HMRC for the reporting fund status applications. We can ensure that compliance with the regime is maintained by calculating annual reportable income and preparing annual reports for HMRC and the investors. Moreover, we will respond to technical and administrative queries, including liaison with lawyers, administrators and HMRC.
Using our expert team to navigate the offshore funds regime will result in certainty for your investors as to their tax position on investments. The application process will be smooth and your fund will be more attractive to UK investors. In addition, a manager's time is saved as administrators can liaise directly with us for technical support.
For further information please contact Stephen Rabel or Marie Barber in the Tax team.
