Taxes Consolidation Act 1997 section 742

Offshore funds operating equalisation arrangements

Section 742 extends the offshore fund income tax charge to funds that operate equalisation arrangements, and sets out how those arrangements interact with the distributor fund rules.

• An offshore fund operates equalisation arrangements where a new investor's first distribution includes a capital repayment (credited to an equalisation account) representing income accrued before the investor acquired the interest.
• A purchase qualifies as an "initial purchase" only where the investor subscribes for new shares or units, or buys directly from the fund managers acting in that capacity.
• The offshore fund income tax charge applies to disposals of interests in funds operating equalisation arrangements, provided the fund has qualifying status and the proceeds are not a trading receipt.
• Share-for-share identification rules are disapplied for reorganisations, amalgamations and unit trust reconstructions involving interests in funds operating equalisation arrangements, so that the original interest is treated as disposed of at the time of the exchange.