The clause amends the rules of the offshore funds tax regime, both to enable offshore funds to use popular commercial structures that allow investors access to a range of financial instruments through a single product and to ensure that the offshore fund regime continues to provide a level playing field for onshore funds.
The offshore fund rules were introduced in 1984 to deter avoidance schemes that sought to roll off investment returns free of UK income tax by holding investments offshore. The regime aims to put UK investors investing in offshore funds on a similar footing in respect of tax for UK investors in UK funds. The sector is fast moving and aspects of the regime have begun to act as a barrier to commercial developments. That is why we announced in October that the Government would consult with a view to reforming the regime in next year’s Finance Bill and why we are making the changes in clause 56 while that consultation continues.
Industry highlighted the fact that one of the changes in the clause would retrospectively affect UK investors in funds that fall within the scope of the clause, as well as compliant funds investing in such funds. Our two amendments will ensure that the legislation will not retrospectively affect any investor and that funds investing in other offshore funds or which for commercial purposes hold underlying assets through intermediate holding companies, including funder fund structures, will not be affected by the changes. The offshore regime relies on the definition in the Financial Services and Markets Act 2000. I commend the amendment to the Committee.