Iona Marti, KPMG

Offshore fund investors to check tax reporting, before HMRC does


Just under two months out from the 2018/19 tax return submission deadline, KPMG is warning offshore fund investors to check their tax reporting, before HMRC does.

Tax reporting for offshore fund investments is a complex area that even wealth managers and tax advisors may have difficulties with. As a result, HMRC is now paying extra attention to check people are getting it right, the consequences of getting it wrong can be severe and fall to the end investor, not their adviser or fund manager. If an investor is found to have misreported, HMRC may be able look back as far as the 2011/12 tax year and potentially charge penalties of up to 200 per cent of the tax owed. 
 
There are two types of offshore funds for UK tax purposes – ‘reporting’ and ‘non-reporting’. Income that is not distributed from reporting funds still needs to be declared to HMRC each year; this is called Excess Reportable Income (ERI). Even some tax advisors may in the past have not picked up on the ERI reporting obligation and fund managers are under no obligation to contact customers with this information directly. Bond fund distributions are subject to a different rate of income tax than equity fund distributions – it can be difficult to identify which is which but getting it wrong can result in an underpayment of tax.*
 
Iona Martin (pictured), Tax Director, KPMG UK, says: “Doing a tax return is hardly the highlight of anyone’s year but being faced with a hefty fine from HMRC would be even more of a lowlight. Offshore fund investing is a complex bit of the tax system and even if people have filed their reports the same way for years without any issues, it doesn’t mean they’ve been doing it correctly. HMRC is now on red alert and is using all powers available to it where taxpayers have been getting it wrong.
 
“If you invest via a fund or wealth manager, you’ll need to make sure you have ready access to the necessary information and there can be practical challenges, particularly if investing in a number of funds. So, any offshore fund investors would do well to just check with their advisor or manager ahead of submitting their returns this year. Anyone who waits for HMRC to tell them they’ve been getting it wrong will face a fine that’s potentially 50 per cent higher than it would be otherwise.”
 

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