How are offshore income gains taxed?

A key feature of the offshore fund regime is that capital gains are taxed as income. However, the offshore gain remains a capital gain for trust law purposes. Broadly, disposal has the same meaning as it has for capital gains tax (CGT) and gains are computed on the same basis even though taxed as income.

How are non-reporting funds taxed?

Non-reporting fund Actual distributions are taxed as income. Actual distributions are taxed as income. Undistributed income is not taxed at that time. Disposal of shares in the fund is taxed at capital gains tax rates.

Which tax rules apply to offshore non-reporting funds when received by UK residents?

Remittance basis taxpayers are only taxable on distributed income if it is remitted to the UK. The disadvantage to non-reporting funds is that gains are regarded as ‘offshore income gains’ and are subject to income tax, at rates of up to 45%, rather than capital gains tax at up to 20%.

How is Eri taxed?

Income received by a reporting fund but not distributed to the investor is called Excess Reportable Income (ERI). The investor is liable to income tax on ERI accrued. It is their responsibility to report ERI on their tax return and pay any tax that may be due.

What is excess reportable income?

Excess Reportable Income (ERI) is the profit from a fund that has not been distributed to investors, either as dividends or interest. ERI is deemed as a distribution of income for UK tax purposes and is treated as if the investor had received it on the Fund Distribution Date.

What are income gains?

Capital gains and other investment income differ based on the source of the profit. Capital gains are the returns earned when an investment is sold for more than its purchase price. Investment Income is profit from interest payments, dividends, capital gains, and any other profits made through an investment vehicle.

What is reporting fund status?

The UK’s tax reporting regime for offshore funds, known as UK Reporting Fund Status (UK RFS), can dramatically reduce a UK investor’s tax bill. The UK tax authority, HMRC, maintains a public list of registered funds, so investors can screen out non-reporting funds before they invest.

How is ERI calculated?

You calculate the total amount of ERI by applying the per unit rate of ‘Excess of reportable income over distributions’ to your shareholding on the last day of the reporting period. You’re obliged to report ERI for the full period even if you acquired the holding on the last day of the reporting period.

What is Eri excess reportable income?

What is Excess Reportable Income? Excess Reportable Income (ERI) is the profit from a fund that has not been distributed to investors, either as dividends or interest. ERI is deemed as a distribution of income for UK tax purposes and is treated as if the investor had received it on the Fund Distribution Date.

Where can I find excess reportable income?

Where can I find the ERI information? All of the ERI information, including a summary of the ERI figures, can be found within the Consolidated Tax Voucher (CTV) under the Interest Received or Dividend Received section. A breakdown of the ERI can also be found in the CTV in the Schedule of Income section.

How do you calculate excess reportable income?

In order to calculate their excess reportable income, the UK investors should multiply the number of shares they held as at the end of the reporting period by the excess of reportable income per share as provided in the investor tax report.

Do you have to pay capital gains tax on offshore income?

When disposals of such funds are made, care needs to be taken as certain types of offshore funds attract income tax, rather than capital gains tax (CGT), on the arising gain. Broadly speaking, funds which accumulate income are subject to this treatment. These funds are known as non-reporting funds.

Can a non-reporting fund have an offshore gain?

However, in the case of non-reporting funds, any such transaction is treated as a deemed disposal resulting in an offshore income gain, which may give rise to a dry tax charge, with the deemed proceeds being be equal to the market value of the shares.

How are offshore funds taxed in the UK?

Offshore funds are non-UK resident investment vehicles, such as companies and the overseas equivalent of unit trusts. When disposals of such funds are made, care needs to be taken as certain types of offshore funds attract income tax, rather than capital gains tax (CGT), on the arising gain.

What are the disadvantages of non reporting funds?

The disadvantage to non-reporting funds is that gains are regarded as ‘offshore income gains’ and are subject to income tax, at rates of up to 45%, rather than capital gains tax at up to 20%. This is to prevent investors accumulating income free of tax in an offshore fund and then claiming capital gains tax treatment on disposal of the units.

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