Offshore reporting and non-reporting funds

Hi I'm currently holding some offshore mutual fund investments in Hong Kong - some are reporting funds, some are non-reporting funds and some are special category transparent funds. With reference to: https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm13100 For non-reporting funds, is it correct that: - fund distributions (in cash or reinvested) should be treated as untaxed overseas income; - profit/loss when redeeming these non-reporting funds should also be treated as untaxed overseas income ? What if the total amount of transaction profit/loss + distributions is negative for the tax year? Should I report the negative total amount as untaxed overseas income? For reporting funds and special category transparent funds, is it correct that: - fund distributions should be treated as untaxed overseas income - profit/loss when redeeming these reporting funds should be treated as investment capital gain/loss ? Many thanks!

Hi,
 

Please refer to further guidance at : Investment Funds Manual    . Thank you.

Thanks for your reply. For example, if I'm holding 4 funds: Fund A (non-reporting fund): cost base is £100, there is a distribution of £1 in the tax year and I sold it at £90. Fund B (non-reporting fund): cost base is £100, there is a distribution of £2 in the tax year and I sold it at £101. Fund C (reporting fund): cost base is £100, there is a distribution of £3 in the tax year and I sold it at £70. Fund D (transparent fund): cost base is £100, there is a distribution of £1 in the tax year and I sold it at £120. Is it correct that I should report as follows? (£90-£100) + £1 [from Fund A] + (£101-£100) + £2 [from Fund B] + £3 [from Fund C] + £1 [from Fund D] = -£2 (which is a net loss) as overseas income and (£70-£100) [from Fund C] + (£120-£100) [from Fund D] = -£10 (which is a net loss) as capital gain/loss Thanks again! PS: For transparent fund, I'm referring to "Whilst this means that such funds will have to monitor their underlying investments, it allows them to avoid the need to apply for reporting fund status. UK investors will be charged capital gains tax or corporation tax on a capital gain arising, rather than incurring an offshore income gain, provided the fund has complied with regulation 29(2))." as stated in https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm13470

Hi 510,

HMRC cannot comment on hypothetical scenarios, you may therefore wish to telephone for specific advise on 0300 200 3300.

Thank you.

Hi HMRC member my foreign unit trust is a uk reporting fund. should I treated it as Dividen instead of interest when I report it to you in tax submission? when I dispose it in future, will it count as Capital gain (if it remains as reporting fund)? Thanks for clarification

Hi samwai,

Guidance on the tax treatment of income arising from the various types of offshore unit trust is provided at IFM13356.  
IFM13356 - Offshore Funds: participants in offshore funds: participants within the charge to income tax: income and distributions from non-reporting funds: non-transparent funds

Thank you.

Dear HMRC, I hv go through it with thanks. one final clarification is: 1. distribution from offshore Non reporting fund, Should I cont it as INTEREST or under Miscillaneous income column ? as I m confused 2. when I sold out my Non reporting fund, it must be under Miscillaneous income increase of capital gain, am I correct? Thanks for your patience

I ask this because my 'offshore Non reporting' has monthly distribution as income to me. I would like to know if this monthly distribution classify as 'Interest' or under 'miscillaneous income'? As there is no allowance in miscillaneous. So I need to specifically clarify with you. Thanks for your patience in the explaination

Hi samwai,

On a disposal of your interest, you will (subject to certain exceptions) be liable to tax on any gains arising as if those gains were income, as opposed to being subject to tax on chargeable gains.
Such gains are referred to as ‘offshore income gains’.

Thank you. 

QUESTIONS ON SALE OF OFFSHORE NON-REPORTING FUNDS I have the following actual investments on offshore ETFs - US listed ETF (FAZ) (a) Purchased 115 shares on Nov 3, 2022@21.62 - not yet UK tax resident on Nov 3, 2022 Sold 115 shares on Dec 28, 2022@19.71 - become UK tax resident on Dec 3, 2022 Loss USD255 (b) Purchased 115 shares on Jan 3, 2023@USD18.83 Sold 115 shares on Mar 14,2023 @USD20.56 Profit USD179.95 (c) Purchased 100 shares on Mar 14,2023@USD21.62 Sold 100 shares on Mar 14, 2023 @21.33 Loss USD49.02 (d) Purchased 100 shares on Mar28, 2023@USD24.64 Now still hold these 100 shares My Questions: (i) Would (a), (b), (c) and (d) together trigger capital gain tax 30 days rule? Or profit on (b) is individually treated as 'offshore income gains'? (ii) If (b) is individually treated as 'offshore income gains', then can (a) and (c) loss be offset profit of (1)(a)? That is, in my case, can the profit of USD179.95 be offset with loss of USD255 and USD49.02, actually no 'offshore income gains'? (iii) Are dividend from these US ETFs are taxed as 'dividend income'? Thanks.

Hi samwai,

You can find guidance here HS265 Offshore funds

as this details when and how to report it.

Thank you.

 

Dear Hmrc officer The guideline in very clear and self explainatory, thanks. It stated that non transparent offshore UNit trust, I have to report in page2 and 3 under "interest and other income from overseas saving" . Did it mean that the fund distributed are also entitle the 1000 pounds personal allowance ? All the best from Sam

Hi Ki Chan,

I regret that we cannot comment on scenarios, real or imagined.  

Non reporting funds are treated as 'offshore income gains' and are subject to income tax and not capital gains tax.  

The gains should be entered in box 41 of SA106 and in the box marked "Other overseas income and gains" on the online return. 

You can find more information here 

IFM12300 - Offshore Funds: introduction: non-reporting funds

Thank you.
 

Hi HMRC Admin 5, Thanks for your reply. Noted that HMRC cannot comment on scenarios, real or imagined. However, I just would like to seek advice: (1) when I calculate the offshore income gains on non-reporting funds (in my case is US listed ETFs - FAZ shares), do I no need to consider the "30 days rule" re capital gains tax calculation? I just straightly calculate gains on each time purchase and then respective subsequent sale, and neglect what I purchase the same shares within 30 days afterwards? That is, can I just calculate gains on Purchase 1 and Sale 1, Purchase 2 and Sale 2........ (2) If I got a 'loss' instead of 'gains in one transaction (purchase and then subsequent sale), could I offset that loss with the gains on the next transaction (again purchase and then subsequent sale) in order to arrive the net offshore income gains? Thanks and regards, Ki Chan

Hi samwai,

If the distributinon is reported in box 3 of SA100, thenit will be subect to the relief available, whether that is £1000/£500.

Thank you.

Hi Ki Chan

The rules for capital gains apply with regard to non-reporting funds, so the bed and breakfasting rules will apply in the same way as they would with the disposal of shares.  

Have a look at How you work out the gain under the ‘bed and breakfasting’ rule.  

IFM13282 advises "for the purposes of determining whether there has been a disposal or not, TCGA applies to interests in offshore funds that are not companies in the same way as it applies to interests in companies.

This is because TCGA applies to interests in unit trusts and to other non-corporate offshore funds in the same way as it does to shares in companies".  

You can look at guidance here IFM13282 - Offshore Funds: participants in offshore funds: participants within the charge to corporation tax: disposals: non-reporting funds: overview Overview - regulations 32 & 33 of SI 2009/3001

Thank you

Hi HMRC Admin 5, Thanks again for your reply. Can losses on disposal of offshore funds be offset with gains on disposal of offshore funds so as to arrive/calculate the 'net gains' on disposal of all offshore funds in a taxable year? Any exceptional rules? Thanks and regards, 

Name removed Admin 

Hi Ki Chan 

Yes. Any losses in the year must be used first even if it means that you lose out on the annual exempt allowance for capital gains.

You will show them as separate fivgures on the return - gains in the year and then losses in the year.

Thank you.

Hi HMRC Admin 5, Thanks for your reply. I still would like to clarify the tax rules of offshore non-reporting funds (in my case is US listed ETFs). In order to try to understand the rules, I read some articles about offshore non-reporting funds. These articles state that: "Gain on disposal of offshore non-reporting funds will be taxable as Income Tax (Other overseas income and gains), whereas a loss will remain a capital loss". (1) Does the tax rule state that a loss in selling offshore non-reporting fund (transaction 1, same share) cannot set against a gain in selling another offshore non-reporting fund (transaction 2, same share)? (2) The gains should be entered in box 41 of SA106. Which box under which form should I fill in the losses in selling offshore non-reporting funds? Thanks.

Hi,
Please refer to further guidance at: HS265 Offshore funds
Thank you.