The Government has announced legislation to restore the non-payable dividend tax credit for offshore funds which are largely invested in equities.
Changes will come into effect after 22 April and will impact on individuals receiving distributions from offshore funds.
The rules will also state that where the offshore fund is "substantially" invested in interest bearing assets, individuals receiving distributions will be treated for tax purposes as having received interest and not a dividend.
Since 6 April 2008, individual shareholders with shareholdings of less than 10% in non-UK resident companies have been entitled to a non-dividend tax credit.
However, the tax credit was withdrawn for offshore funds as some collective investment schemes were seeking to exploit the extension by locating their cash or bond fund ranges offshore, with the intention of securing tax advantages.
Currently, distributions made as dividends from offshore funds received by individual shareholders are currently taxed at rates of 10% for basic rate and 32.5% for higher rate taxpayers.
However, where the distributions are from non-corporate offshore funds, they may be taxable at different rates depending on the type of fund and in some cases, the nature of the fund income.
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