Taxes Consolidation Act 1997 Schedule 20 paragraph 7

Cap on offshore income gain on a disposal involving an equalisation element

Paragraph 7 caps the offshore income gain on a disposal involving an equalisation element so that it cannot exceed the gain calculated under paragraph 8.

• Where a disposal involves an equalisation element, the Part 1 gain must always be computed under paragraph 8 to establish a ceiling for any offshore income gain.
• If the Part 1 gain computation produces nil or a loss, no offshore income gain arises and the investor faces no tax charge on the disposal.
• If the Part 1 gain is positive but lower than the equalisation element, the offshore income gain is reduced to the amount of the Part 1 gain.
• The rule prevents an investor in a distributing fund that operates equalisation arrangements from bearing a heavier tax charge than an investor in a comparable non-distributing (roll-up) fund.