Revenue Note for Guidance

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Revenue Note for Guidance

741 Disposals of material interests in non-qualifying offshore funds


This section applies the provisions of the Chapter to the disposal of a material interest in an offshore fund which is or has been at any time after 5 April, 1990 a non-qualifying offshore fund, which is essentially a non-distributing offshore fund. The Chapter also applies to a disposal of a material interest in an onshore fund if the fund has not come onshore before 1 January, 1991, that is, if it is or has been a non-qualifying offshore fund at any time on or after that date.

The capital gains tax definition of a disposal applies, with two modifications. Firstly, death is an occasion of charge – the gain being calculated by reference to the market value of the deceased’s interest in the fund. Secondly, the provisions covering exchange of securities (on take-overs, reconstructions and amalgamations) are modified so as to prevent their use for avoidance of the charge imposed by the Chapter and Schedules.


(1) The type of disposal to which the Chapter and Schedules 19 and 20 apply is specified. [Paragraph 5 of Schedule 20 sets out the gain which is to be treated as arising on such disposals. Section 745(1) provides that such gains are to be charged to tax as income.] The disposal may be made by an individual, a company or any other person.

The following terms are referred to in paragraph (a) —

  • a “material interest” in a fund is essentially an interest which can be realised as a share of the market value of the assets of the fund,
  • an “offshore fund” is a non-resident company, a unit trust scheme with non-resident trustees or some other foreign fund,
  • a “material time” in respect of an interest in an offshore fund is any time after 6 April, 1990 or any time after a later date if the investor acquired the interest at that later date, and
  • a “non-qualifying offshore fund” is essentially a non-distributing fund.

The provisions of the Chapter apply to a disposal of a liquid or realisable interest in a foreign fund where for any period after 6 April, 1990 the fund was not a distributing fund.

A non-distributing foreign company or unit trust is prevented from getting around the provisions of the Chapter by becoming resident in the State prior to shareholders or unit holders disposing of their shares or units. If an offshore fund “comes onshore”, by becoming resident in the State before 1 January, 1991, the provisions of the Chapter do not apply to it. However, if a non-qualifying offshore fund delays coming onshore until, on or after 1 January, 1991, it will not prevent the provisions of the Chapter applying to disposals of interests in the fund by coming onshore before the disposals are made. In other words if a fund comes onshore on or after 1 January, 1991, a gain to an investor who subsequently disposes of an interest which he/she acquired in the fund while it was still a non-qualifying offshore fund are to be charged as income.

It will not be possible for offshore funds to avoid the provisions of paragraph (b) by reorganising shares, units or other interests in the fund after coming onshore. For example, investor X might own 1,000 units in a non-qualifying offshore unit trust. The unit trust might come onshore after 1 January, 1991 and convert each existing unit into 2 new “A” units. [The reorganisation of units would not be treated as a disposal by virtue of section 733.] The investor will not be able to argue that he/she is disposing of 2,000 “A” units which were never units in an offshore fund. The investor is denied this argument because subsection (1) applies section 584 (as applied by section 733) which treats the original units and the replacement “A” units as the same asset.

(2) As a general rule “disposal” has the same meaning as it has for capital gains tax purposes. The exceptions, considered in detail below, are that disposals are treated as arising on the death of an investor or on reorganisations, reconstructions or amalgamations of companies.

(3) One of the major differences between the charge to tax on offshore gains and the normal capital gains tax charge is that in the former case a charge arises on the death of an individual entitled to a material interest. Under the capital gains tax legislation, assets are deemed to be acquired, but not disposed of, on an individual’s death. A material interest in a non-qualifying offshore fund of which the deceased was “competent to dispose” is deemed to be disposed of by the deceased for a consideration equal to its market value at the date of death. This does not, however, apply to disposals to which the Chapter applies only by virtue of section 742, that is, disposal of interests in funds which are distributing offshore funds but which operate “equalisation arrangements”.

The subsection prevents the deemed disposal on death from being taken into account in determining any other question for the purposes of the Chapter – such as determining whether the deceased investor could reasonably have expected to realise the value of an interest within 7 years so as to render it a “material interest” in the terms of section 743 (2).

(4) Section 573 is otherwise applied for the purposes of the Chapter so that “competent to dispose” refers to assets of the deceased which (other than by power of appointment or under statutes regarding entails) he/she could, if of full age and capacity, have disposed of by his/her will, assuming the assets to be situated in the State. This includes severable shares in assets to which he/she was beneficially entitled as joint tenant.

The remaining provisions of section 573 are also applied to offshore gains. These provisions relate to allowable losses in the year of death, deemed acquisition by personal representatives and legatees, and alterations of the distribution of the deceased’s estate within 2 years after death.

(5) Certain capital gains tax provisions are excluded. These provide that certain company take-overs and amalgamations by exchange of shares are removed from the capital gains tax charge by treating the new shares as the same asset as the old shares. For the purposes of tax on offshore gains, such “paper-for-paper” transactions are put back into charge as disposals where they would otherwise have the effect of taking the ultimate disposal of an interest outside the scope of the Chapter.

(6) An exchange of shares in an offshore fund which is the subject of a take-over or amalgamation is to be treated as a disposal at market value.

(7)(a) Provisions are made for transactions which are disregarded for the purposes of capital gains tax. For example, a transfer from a husband to his wife is not treated as a disposal and vice versa. The husband’s acquisition of the asset is treated as the wife’s acquisition of the asset. If the wife ultimately disposes of the asset she is to be charged on a gain calculated by reference to the acquisition cost to the husband. Provision is made to ensure that in such instances a material time is any time on or after the giving of consideration to acquire the asset by either husband or wife. Accordingly, if an interest was an interest in a non-qualifying or non-distributing offshore fund while owned by a husband, the Chapter would apply to a disposal of that interest by his wife even if the fund were a qualifying fund after the interest had been transferred to her.

(7)(b) A “material time” means on or after 6 April, 1990, in the case of assets already owned by the investor at that date. In the case of assets acquired by the investor after that date, it means on or after the earliest date on which the investor gave consideration which would be taken into account in computing a gain or loss on disposal of the asset.

Relevant Date: Finance Act 2021