»Ê¹ÚÌåÓýapp

A FINROF is an authorised investment fund (AIF) which either:

• Meets the investment condition (see below) in regulation 85D of SI 2006/964; or
• Has elected to enter the FINROF regime (see regulation 85F).

»Ê¹ÚÌåÓýapp investment condition

An AIF has met the investment condition if more than 50% of its investments (by gross asset value) are in non-reporting offshore funds and FINROFs.

For the purpose of this test certain investments are not included as interests in a non-reporting fund (see regulation 85E):

• An interest in a transparent non-reporting fund, subject to certain criteria; and
• An interest in a non-reporting fund where the AIF is able to establish the amount of income in the fund which has arisen to investors.

Within 3 months of the date an AIF met the investment condition and became a FINROF it must notify HMRC (regulation 85H) and investors (regulation 85I). »Ê¹ÚÌåÓýappre are penalties for failure to notify either.

If an AIF inadvertently fulfils the investment condition, then it may be treated as never having met the condition provided:

• It tells HMRC as soon it became aware it has inadvertently met the investment condition;
• It takes steps to ensure it no longer meets the investment condition within 4 months of the date it inadvertently met the condition; and
• HMRC gives notice that the fund is treated as never having met the condition.

HMRC may refuse to treat the fund as never having met the condition. »Ê¹ÚÌåÓýapp AIF may appeal against that decision to the First-tier Tribunal and the Tribunal may uphold or set aside HMRC’s decision (see regulations 85J and 85K).

Electing to be a FINROF

If an AIF does not meet the investment condition it can elect to be a FINROF, provided it has satisfied any necessary regulatory approval (see regulation 85F).

An election must be made in writing to HMRC and specify a date from which the AIF will enter the FINROF regime. That date must be no more than three months before the date of the election.

»Ê¹ÚÌåÓýapp fund must notify all its investors that it is a FINROF within 3 months of the date it entered the regime. »Ê¹ÚÌåÓýappre are penalties for failure to notify investors.