Offshore Investment Funds

What are offshore investment funds?

“Offshore” generally means any jurisdiction, wherever geographically located, which is advantageously different from one’s own domestic financial environment.

Offshore fund managers are restricted in what they are permitted to market directly to UK investors.  The Financial Services & Markets Act 2000 makes provision for certain territories and funds to receive approval from the UK authorities to offer their products for direct subscription by UK residents.

The funds themselves are collective investment vehicles, which might be structured like a Unit Trust or an Open Ended Investment Company.  Generally, it is prudent to invest in “FSA recognised” funds, which are classified into one of two categories, and this determines what treatment investors’ returns will receive and tax planning options. 

Who is offshore investment suitable for?

Offshore investment may be suitable for those who have a need to mitigate high taxation.  It may also be suitable for non-UK residents and or non-UK domiciled individuals.

What are the benefits?

Advantages of offshore investing take a number of forms; a tax free or “tax-lite” regime, making increased performance achievable where assets can be held in confidence, and the timing of tax payments and mitigation of the rate at which they are levied can be managed by investing offshore. 

Offshore jurisdictions offer differing ranges of investor protection and those including Dublin, Jersey, Guernsey, Isle of Man and Luxembourg have politically stable and strong regulatory regimes to protect investors.

What are the risks?

In addition to the risks associated with the particular underlying investment, the offshore environment can often lead to additional costs when compared to onshore.  The tax savings must be weighed up against any additional costs.

The tax consequences of getting offshore investment wrong can be severe.