If you have invested in an offshore fund you need to check whether it holds Reporting status or not:
- If you own an offshore fund and it doesn’t have reporting fund status, income and gains will be taxed at your Income Tax rate – broadly speaking 20%, 40% or 45% – as opposed to the gains being taxed at the lower Capital Gains Tax (CGT) rates of either 10% or 20%
- If you own an offshore fund which has reporting fund status, gains are taxed at the lower CGT rates. However, these funds have an additional element which needs to be considered…
If you hold any of these ‘Reporting Funds’ outside of a tax-free wrapper (such as an ISA or a SIPP), you may be earning additional profit known as excess reportable income (ERI) on top of amounts actually paid to you as interest or dividend income.
This additional profit (ERI) accumulates in your offshore fund and should be reported on your annual Tax Return form, and is taxed as income (interest or dividend).
On the flip side, the ERI should be added to your CGT base cost; reducing the capital gain when the Fund is sold. Again, this may not be properly reflected in your tax pack.
ERI is an easy one to miss – it’s not always easily identified in reports produced by your fund manager and it’s easy to assume that because the funds are accumulated, there’s nothing to report. Not every fund will earn ERI but it is important to check each relevant offshore investment you own, every year, when completing your annual Tax Return form to ensure your completing your Tax Return correctly.
If you have money invested in offshore funds, outside of a tax-free wrapper, which might not have been reported correctly on your Tax Return, please contact the team from CKLG your Cambridge-based accountants and tax advisers on 01223 810100 for friendly help and support on how to regularise your position.
