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What are offshore funds? | Trustnet Skip to the content

What are offshore funds?

02 July 2013

This guide reveals the key differences in terms of legal protection and structure between funds domiciled in the UK and those listed abroad.

By ,

ALT_TAG Offshore funds are those domiciled outside of the UK, which means that they are regulated by the authorities in another country.


You can search for offshore funds on FE Trustnet using our offshore performance league tables, which include FCA recognised offshore funds - those which conform to reporting standards laid down by the British financial services regulator.

This means there are extra risks involved, as the law and regulations abroad could be different from those here.

Investors could find that legal protections for them are not as tight as they are in the UK, but this really depends on the country in question.

EU regulations designed to create a single market in financial services have ensured that in the countries of the EEA – the EU 27 plus Norway, Liechtenstein and Iceland – there are common standards of protection for investors, either by the FCA or the equivalent regulator in the other EU countries.

This means that investors can have more assurance about how they will be treated if there is a problem with their fund. Many offshore funds are domiciled in Luxembourg or Ireland – corporation tax is very low in both countries – and as such are covered by EU regulations.

If you are thinking along these lines, however, you should consider how able and willing you would be to use the law in a foreign country to protect your rights.

It is worth bearing in mind that Guernsey and Jersey are not members of the EEA, which means they are not regulated by the FCA or EU equivalent.


What are the advantages?


There have traditionally been tax advantages to investing offshore, which is something that the UK authorities have understandably been keen to keep an eye on.

FE Trustnet does not offer advice on these matters and you may wish to seek professional counsel.

Laws and regulations change regularly, which makes it essential that you know exactly where you stand if you do invest offshore.

One of the key differences is reporting funds and non-reporting funds.

Reporting funds have agreed to keep HMRC advised on a great deal of information pertaining to their gains and distributions to investors. As a result, they are treated more leniently in terms of tax.

Non-reporting funds have made no such commitment and are treated more harshly. One of the motivations for this is to discourage people using offshore funds to avoid paying all the tax they should.

All regulations are subject to change and you must not treat any of this information as advice on how or whether to invest.

There are some strategies that are difficult to find onshore, such as hedge funds, or more specialised funds that many professional investors buy in their funds of funds.

However, highly specialised funds are suitable for few retail investors.

Sometimes it is possible to find funds run by fund managers who are well-established in this country that offer slightly different strategies to their onshore equivalents. In other cases, the offshore versions remain open while the UK funds have been soft-closed to discourage new money coming in.


Should I avoid them outright?

There is no doubt that offshore funds are more complicated, meaning you should consider whether you need professional advice before investing in these products.

Many professional investors say that they only use offshore funds when they are looking for an esoteric strategy that they cannot find in the UK.

Common sense says that a fund run from Ireland by a well-known fund house with a large presence in the UK is an entirely different animal from a hedge fund run from a tiny island that you cannot place on a map.

However, it is worth asking yourself if there is really any need to take on the extra risks involved.


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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.