HMRC’s Offshore Investment Fund Letters

It has become evident that HMRC are acting on information received under the Common Reporting Standards (“CRS”) and other information exchange agreements to make contact with taxpayers that they believe have invested in Offshore Investment Funds.

HMRC are writing to all taxpayer and ‘factsheets’ are being sent in order to provide guidance on the tax implications of holding an offshore fund.

So if you have received this letter it is likely you will be invested in some kind of offshore fund and you may wish to check that these have been reported correctly to HMRC.

Very broadly, offshore funds need to determine if they are “reporting” (distribute all income and recognised as a reporting fund by HMRC) or “non-reporting” (not transparent/don’t report income).

It is “non-reporting” offshore funds which can cause a UK tax problem and these will often include ETF investments and US mutual funds for example.

Capital gains realised on non-reporting offshore funds are offshore income gains “OIGs” and subject to income tax rather than capital gains tax. 

However, losses from offshore funds (reporting and non-reporting) cannot be offset against offshore income gains.  They are treated as normal capital losses (specifically a “negative income loss” is not created) which can only be offset against capital gains.

Some ETF’s/offshore funds have reporting status, but this needs to be approved by HMRC so they appear on this list of offshore reporting funds and it means they qualify for capital gains tax treatment instead of being an OIG.

If you have offshore funds and believe you may have reported these incorrectly please contact us as we can assist you making a disclosure to HMRC in order to correct any errors.