Investing in offshore funds can result in unexpected tax results depending on the type of fund held.
There are Reporting Funds and Non-Reporting Funds. Disposals of units in a reporting fund are subject to the normal capital gains tax rules if a gain or loss is made. However if non-reporting units are disposed of at a gain, the gain is subject to income tax (as an offshore income gain), not capital gains tax.
On the other hand if the disposal of non-reporting fund units results in a loss, that loss would not be deductible from offshore income gains, but instead deductible only from normal capital gains.
This contrasting tax treatment of capital gains and losses arising from disposals of non-reporting fund units can lead to significantly more tax payable in some cases than might originally have been expected. We would advise clients to bear this in mind before investing in non-reporting funds and to take advice if they are unsure of the status of particular investments.