Offshore investment funds – HMRC ‘nudge’ letters

Offshore investment funds – HMRC ‘nudge’ letters

HMRC is asking taxpayers to check whether they are correctly reporting Excess Reporting Income and Offshore Income Gains.


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‘Nudge’ letters from HMRC are being issued to a large number of UK taxpayers, encouraging recipients who are preparing their 2018/19 tax returns to check whether they are correctly reporting Excess Reporting Income (ERI) and Offshore Income Gains (OIGs) from their offshore fund investments. HMRC also ask recipients to consider returns already submitted for 2018/19 and earlier years.

Who is this relevant to?
Potentially anyone who has invested in offshore investment funds and is unsure if Offshore Income Gains and/or Excess Reporting Income have been declared correctly.

Why is this important?
HMRC are aware that taxpayers sometimes declare gains in offshore non-reporting funds as capital gains rather than offshore income gains. The former can attract an annual exemption and are taxed at a lower rate than the latter; hence tax is underpaid in such situations, sometimes by significant amounts.

HMRC are also aware that some financial institutions are/have been unable to calculate Excess Reporting Income as part of the annual tax certificate and therefore this could have been missed off their tax returns by investors in offshore reporting funds unaware of the situation.

The annual tax packs provided to investors by private banks and wealth managers may not include all of the income that must be reported on the tax return; and may or may not make it clear that income is missing. The reason being that it can be operationally difficult and costly to ascertain that information. There is no requirement for the fund managers to provide this information directly to the individual investors – it must simply be made ‘publicly available’. The definition of ‘publicly available’ is not set in stone and as a result accumulated income reports can be time-consuming (and costly) to find.

What action should be taken?
Unlike in previous campaigns, where certificates were requested to be completed, HMRC do not require the taxpayer to confirm that the position is correct.

If any correction is required for earlier years, however, an amendment and/or a disclosure will be appropriate. There could also be Failure to Correct penalty implications (subject to having a reasonable excuse). In addition, HMRC may later undertake their own enquiry into the position given that they have targeted those they are writing to.

Therefore, it would be sensible to check the position and if you are not sure if Offshore Income Gains or Excess Reporting income have been declared correctly please do get in touch with your usual KPMG contact.

For further information please contact:

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