Offshore fund investors to check tax reporting

Offshore fund investors to check tax reporting

Just under two months out from the 2018/19 tax return submission deadline, KPMG warns offshore fund investors to check their tax reporting, before HMRC does.


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Tax reporting for offshore fund investments is a complex area that even wealth managers and tax advisors may have difficulties with. As a result, HMRC is now paying extra attention to check people are getting it right, the consequences of getting it wrong can be severe and fall to the end investor, not their adviser or fund manager. If an investor is found to have misreported, HMRC may be able look back as far as the 2011/12 tax year and potentially charge penalties of up to 200% of the tax owed.  

There are two types of offshore funds for UK tax purposes - ‘reporting’ and ‘non-reporting’. Income that is not distributed from reporting funds still needs to be declared to HMRC each year; this is called Excess Reportable Income (ERI). Even some tax advisors may in the past have not picked up on the ERI reporting obligation and fund managers are under no obligation to contact customers with this information directly. Bond fund distributions are subject to a different rate of income tax than equity fund distributions – it can be difficult to identify which is which but getting it wrong can result in an underpayment of tax.*

Investors can check what sort of fund their money is in at and should speak to their advisor or fund manager ahead of submitting their tax returns this year.

Commenting, Iona Martin, Tax Director, KPMG UK explains: “Doing a tax return is hardly the highlight of anyone’s year but being faced with a hefty fine from HMRC would be even more of a lowlight. Offshore fund investing is a complex bit of the tax system and even if people have filed their reports the same way for years without any issues, it doesn’t mean they’ve been doing it correctly. HMRC is now on red alert and is using all powers available to it where taxpayers have been getting it wrong.

“If you invest via a fund or wealth manager, you’ll need to make sure you have ready access to the necessary information and there can be practical challenges, particularly if investing in a number of funds. So, any offshore fund investors would do well to just check with their advisor or manager ahead of submitting their returns this year. Anyone who waits for HMRC to tell them they’ve been getting it wrong will face a fine that’s potentially 50% higher than it would be otherwise.” 


*Investors will also want to note that gains on non-reporting funds are subject to income tax, not capital gains tax.  Income is generally taxed at a higher rate and doesn’t benefit from the Annual Exempt Amount that applies to capital gains.  



For more information contact: 

Christina Bridge, KPMG Corporate Communications

M:  Tel: +44 (0)7789 504905



Alastair Henry, Associate Director, Citypress

M: +44 (0)161 235 0320


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