Taxes Consolidation Act 1997 Schedule 19 paragraph 2

Funds operating equalisation arrangements

Paragraph 2 of Schedule 19 sets out how the distribution test applies to offshore funds that operate equalisation arrangements, treating income accrued to the date of a disposal as a deemed distribution.

• Where an interest in an equalisation fund is disposed of, the fund is treated as making a distribution equal to the income accrued to the disposal date.
• The test applies only to disposals of material interests made to the fund itself or its managers, where the resulting gain would otherwise be taxed as an offshore income gain.
• If the interest was acquired and disposed of before any distribution has been made, the deemed distribution is restricted to the income accrued since the latest acquisition.
• The deemed distribution is treated as foreign source income taxable under Case III of Schedule D, made from the fund's income for the account period in which the disposal occurs.