Subject to de minimis limits (a holding of less than 25 per cent*), a participator (broadly, a shareholder) in an overseas resident company which would be a close company (generally, a company controlled by five or fewer participators) if it were resident in the UK, is assessable on a part of any chargeable gain made by the company, provided that at the time the gain accrues the person is resident or ordinarily resident in the UK. In summary, this means that gains accruing to a non-resident close company are attributed to shareholders.

HMRC takes the view that a gain attributed to a charity does not qualify for the general CGT exemption and therefore certain charities could find themselves with an unexpected tax charge on a deemed gain from an overseas investment. The tax would become payable under the deeming provisions even if no payment were received from the overseas investment.

Investment in an overseas investment fund will further complicate matters because funds often take the form of partnerships which invest in corporate vehicles rather than operating as a company in their own right. When considering the 25 per cent limit, the participator must include all other UK-resident partners: therefore, if together they reach the 25 per cent limit they will all be subject to this anti-avoidance legislation. In practice, this may prove impossible to monitor because the identity of the other partners will not be known to the charity investor – let alone their tax residence status.

*This limit was increased from 10 per cent in 2012, mainly as a result of CTG lobbying. Whilst this is likely to exclude most charities, see above regarding investing in an investment fund.