IR25                               29 November 1994

      OFFSHORE FUNDS: SIMPLIFICATION MEASURES

The  Chancellor proposes in his Budget to make two changes  to  the
offshore funds  legislation,  so that:

the legislation will no longer apply to entities that are not
"collective investment schemes"  as defined in the Financial Services
Act;

funds  with very low gross income will not  need to incur the
administrative cost of distributing it to satisfy the "distribution
test".

The  Chancellor's  intention is  to  simplify  the offshore  funds
legislation and  ease  compliance burdens, for certain cases where
the present rules are unnecessarily onerous.

The  first of the two measures will apply as  from today  and the
second for account periods of funds ending on or after today.

                 NOTES FOR EDITORS

1.   The Offshore Funds legislation was introduced in 1984.  It
applies to a wide range of investment vehicles set up outside the
United Kingdom.  These often  take the form of an 'open-ended'
investment company, where the investors' holding consists  of shares,
or a unit trust type of arrangement, where the investor holds units.


2.   The  legislation makes a distinction  between funds  which
distribute most of their  income  to investors  ("distributor"
funds), and funds  which accumulate the income in the fund until
investors realise    their   holdings   ("roll-up"   funds).
Investors  in  a  "distributor"  fund  that  meets certain conditions
and is certified by the  Inland Revenue  are liable to capital gains
tax  on  the gains  made on disposal of their holdings.   In  a
"roll-up" fund investors are charged to income tax on the disposal
proceeds.

3.  Under the first of the Chancellor's proposals, entities   that
are  not  collective   investment schemes  within  the definition in
the  Financial Services  Act 1986 would be removed entirely  from the
scope of the offshore funds legislation.  This is   intended  to
apply  to  certain   types   of commercial   structures  used   by
international groups,  which  are not created  as  vehicles  for
rolling-up income but may technically be  offshore funds  as  the
legislation  now  stands.   (Other offshore  funds  which  are
collective  investment schemes will not be affected by this change.)

4.   Under  the  second  proposal,  funds  seeking Inland   Revenue
certification  as  "distributor" funds   will   be  treated  as
having   met   the distribution test where the gross income in a year
is  very  low - and where the cost of distributing that     income
to    investors    would     be disproportionate.  At present this
relaxation  is only available where the annual income is nil.  It is
proposed that the de minimis limit will be set at  1  per cent of the
average value of the fund's assets for the year in question.

5.   These changes have been proposed following  a review   of   the
offshore  funds   legislation, suggested  by  a number of interested
bodies,  to find  ways of simplifying it and easing compliance
burdens  for  fund managers.  The effect  will  be that the special
income tax charge imposed by  the legislation will no longer operate
in a number  of cases  at the margins where it is reasonable  that
the   provisions  should  not  apply.   Individual investors  will
not need to take  any  action  to benefit from the changes.

6.   The  revenue cost of these measures  will  be negligible.