Mixed funds in offshore structures

Partner Jennifer Smithson, solicitor Iskra Doukova and trainee solicitor Jack Engelberg have authored an article describing the effects of this proposal in the July 2020 edition of Private Client Business, a leading journal for those involved in private client work.

There are a number of provisions dealing with income tax and capital gains tax in this general field. Taking pride of place, no doubt, is the anti-avoidance provision relating to the transfer of assets abroad, now enacted as ss.714 to 751 of the Income Tax Act 2007. For capital gains tax there are provisions in ss.3 to 3G and ss.86 to 97 of the Taxation of Chargeable Gains Act 1992 dealing with assets held by overseas-resident companies and trustees. A perennial problem has been to determine whether a mixed fund of assets held in such a structure represents capital or income, especially in a case where record-keeping has been sub-optimal, and whether distributions from such a structure to a beneficiary resident in the UK are subject to income tax or capital gains tax.

Now a proposal from Liechtenstein professionals to un-mix such funds on a standard basis has been accepted as reasonable by HMRC, and this article describes its effect. Further, the article explains that, in theory, this should not be limited to Liechtenstein.