Offshore Unit Trusts And Oeics_1_2

Offshore Unit Trusts and OEICs

An offshore fund is a collective investment, although some are unit trusts, most offshore funds are Open Ended Investment Companies (OEICs).

FSA-Recognised Funds
Offshore funds first saw the light of day in the tax havens of the Caribbean and the Channel Islands: Now offshore fund investment managers exist in many different parts of the world such as Ireland, Luxembourg, the Isle of Man and the British Virgin Islands for example. Although the managers of offshore funds face certain restrictions with regard to what they can and cant offer potential UK investors, some funds are able to market their products directly to UK residents. Funds which are domiciled in one of the ‘Designated Territories’ of Jersey, Guernsey, the Isle of Man and Bermuda are known as FSA Recognised Funds.

Many investors and rightly so associate the term ‘offshore’ with i) tax-advantageous investing and ii) anonymity. Generally speaking the main advantage of investing in an offshore fund is that the returns are distributed free of tax or else reinvested and used to heighten a funds overall performance. (Investors who are resident in the UK will eventually have to pay tax on the growth or income their offshore investments produce.) Unlike their onshore counterparts, offshore managers can invest in a wider range of potentially performanceboosting asset classes such as commodities, derivatives and hedge funds.

With regard to confidentiality, many offshore centres continue to do all they can within the law to safeguard the identities of their investors, which can be an important benefit for some individuals.

FSA Recognised offshore funds are classified as being either Qualifying or Distributing funds, or Non-Qualifying or Accumulation funds.

In a Qualifying fund, at least 85% of the funds income must be distributed to its investors. As tax is not deducted at source from the distributions, UK investors must declare the income in their annual tax returns. Paying the tax due on the distributions later rather sooner, can leave the investor with more capital to invest. Depending on the funds performance, the investor may also have to pay Capital Gains Tax when the investment matures or is sold.

Non-Qualifying funds do not distribute income, so the investor has no income tax to pay until the investment matures. All investment returns are reinvested in the fund which can help enhance its overall performance. On maturity or disposal of a Non-Qualifying fund, HM Revenue & Customs classifies the return as being an ‘Offshore Income Gain’ and as such subject to the investor’s highest marginal rate of income tax.

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