Funds Investing in Non-Reporting Offshore Funds (“FINROFs”)
Following a consultation process, HMRC has introduced a new tax regime allowing Alternative Investment Funds (“AIFs”) to invest more than 20% of their gross asset value in FINROFs. Once an AIF exceeds this 20% threshold it will be subject to the new tax regime for FINROFs. The new regime will cover, for instance, ‘funds of hedge funds’ or ‘private equity funds of funds’.
Legislation already published took effect on 6 March 2010 giving distinct tax treatment to FINROFs. In short, FINROFs will not suffer a tax charge on income from investment in non-reporting offshore funds. Instead, UK resident investors in FINROFs will be charged to income tax on any gain realised on disposal of the units. This will put them in broadly the same position as if they had invested directly in offshore funds.
Following the introduction of the FINROF regime, HMRC states that it will continue to work with the asset management industry to alleviate the tax issues arising for mixed funds.
For a more detailed analysis of FINROFs, please click on the following link: