We have a client who has a non-reporting offshore fund, currently valued at £5.5m, cost £2.5m = gain £3m
• My understanding is that this gain would be brought into income tax on surrender (within the next week or so as the fund is being liquidated) under the provisions within SI 2009/3001.
• The client has a Foundation (registered charitable trust) and we have suggested that she gift the investment to the Foundation so as not to trigger a tax charge on surrender.
• S38 SI 2009/3001 confirms “an offshore income gain arises of an amount equal to the basic gain on the disposal”
• “basic gain” is defined in s39 as “the basic gain is a gain of the amount which would be the gain on that disposal for the purposes of TCGA 1992 if the gain were computed without any regard to any charge to income tax arising under this Part”
• s257 TCGA 1992 treats the gift as being on a no gain/no loss basis for CGT purposes
• It follows that the gifts should qualify for income tax relief under ITA 2007, s 431 to s 446. Section 432 lists the types of qualifying investments and these include offshore funds as defined for tax purposes at TIOPA 2010, s 355 – I’ve had assurance from the fund manager that this is a qualifying investment for the purpose of s355.
Has anyone carried out similar planning before, or able to confirm that I’m on the right track?
There is no tax avoidance motive here, the Foundation is a grant making charity which our client makes regular donations to to enable it to carry on its good works, however, I’d be most grateful to know of any unforeseen traps!