Offshore Funds and Excess Reporting Income – there is no hiding place from HMRC….

28 September 2018

Offshore funds are now a common investment strategy recommended by most portfolio providers, but some of the taxable income connected to these funds can be hidden from view, which could mean individuals have missed income receipts that should have been disclosed to HMRC.

Offshore funds include popular exchange traded funds like IShares, and they are either ‘reporting’ (HMRC tax compliant) or ‘non reporting’.  Reporting Funds have the advantage of investors being able to pay capital gains tax (20%) rather than income tax (46% in Scotland) on any profit on sale, which is why many funds choose to apply to HMRC for reporting status in an effort to encourage investors.

What is Excess Reportable Income?

Reporting funds can choose to distribute dividends or interest, or instead retain this within the fund, but the catch is that this undistributed income, or Excess of Reporting Income (ERI) remains subject to tax, despite the investor never seeing this. Actual cash distributions are readily captured on annual consolidated certificates issued by portfolio providers, but in most cases the hidden, undistributed income is never identified. Many believe that ERI is often very small, and so the tax involved is insignificant, but this isn’t always the case.

Why are you telling me this now?

HMRC have confirmed that ERI falls within the Requirement to Correct regime (RTC). As outlined in earlier blogs, the potential 200%/300% tax penalties they can impose for non disclosure is not something to be ignored, and we would recommend immediate action /registering to disclose before 30 September.

For more information please contact Lynn Gracie ( or your usual AAB contact.

To find out more about Lynn and the Private Client team, click here.

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