Offshore Fund Management

Do you understand the structure of your offshore fund? It may not seem important - after all, you are mainly interested in how much money it makes. But if you are used to the ‘domestic’ fund management of London, Boston or Frankfurt you may not be familiar with the various ‘bells and whistles’ of offshore investment schemes.

What may be particularly unfamiliar are the jurisdictions from where the offshore funds are sold. Rather than a City of London address, they are domiciled in places like the Channel Islands, the Isle of Man, Bermuda, Luxembourg, or Dublin. Yet, many of the companies will be known to UK investors - most large UK fund management houses have an offshore arm selling funds to expats, foreign nationals and UK residents.

Offshore Fund Management & The UK Taxpayer

In tax terms, there are two types of offshore funds: distributor funds and accumulator funds. Distributor funds must pay out at least 85 per cent of their income as dividends and UK investors pay income tax on these and capital gains tax on other profits. Accumulator funds roll up returns in the fund and the UK investor is not liable to tax until he sells units. Then gains are subject to income tax (not capital gains tax).

Offshore Fund Management - The Fund Are Dominated

The funds are denominated in a range of currencies. The investor interested in North American equities can find funds denominated in sterling or dollars, while European funds are denominated in sterling, Deutschemarks or euro.
Remember, however, that the attraction of different currency denominations is double-edged. It increases investment risk because the investor is also adding currency uncertainty to the risk of the holdings themselves.