In response to information received from overseas tax authorities regarding UK tax payers holding investments in offshore funds, HMRC have sent a number of ‘nudge letters’ to UK investors to remind them of their UK tax obligations arising from their investments in these funds.
The correct UK tax treatment of any income or gains from these funds will depend on whether the fund has UK reporting fund status or not. Broadly speaking, gains made on disposal of units in a non-reporting fund are subject to income tax while gains in a reporting fund receive capital gains tax treatment. Any ERI allocated by a reporting fund will also need to be included in the UK tax return together with any interest and dividends received. Investors will need to ensure that the details in tax reporting packs provided to them includes all amounts arising from investments in offshore funds.
If you (or your client) receives a nudge letter, you should check whether any additional income from offshore fund holdings should be included in the 2018/2019 tax return. If this has already been filed, the return can still be amended. You should also check that any previous tax returns are correct. While the HMRC’s letter is not saying that tax has been underpaid, they do undertake a risk assessment before sending these letters out.
Where there has been failure to disclose tax liabilities arising from assets held abroad, penalties of up to 200% may apply.
Duff & Phelps’ tax specialists can help you understand whether there is any disclosure required regarding an offshore investment and if there has been any under reporting of UK tax. Our team can also advise on the best course of action if underpayment has occurred.