Guidance

HS265 Offshore funds

Published 6 April 2023

This help sheet is intended to provide guidance to UK investors with an interest in an offshore fund when completing their Self-Assessment return. It covers (i) what an offshore fund is and (ii) how gains and income arising to UK investors from an interest in an offshore fund are taxed.

Please be aware this helpsheet is a guide only and may not cover all aspects of your tax obligations relating to offshore funds. This help sheet also does not apply to UK investors who pay Corporation Tax. For further guidance on the taxation of offshore funds, please refer to the Offshore Funds sections of the Investment Funds Manual.

What is an offshore fund?

The UK has a specific tax regime which applies to UK investors in offshore funds.

The term ‘offshore fund’ has a specific meaning. Broadly, an offshore fund is an investment fund which is based outside the United Kingdom and meets certain conditions.

An investment fund may be an umbrella fund with several distinct sub funds or compartments. Where that is the case, each sub-fund is treated as a separate offshore fund. Where a fund or sub-fund has more than one class of interest, each class of interest is treated as a separate offshore fund.

Examples of non-UK investment funds which could be an offshore fund if they meet the conditions are:

• non-UK unit trusts, such as a Jersey Property Unit Trust (JPUT) or Guernsey Property Unit Trust (GPUT)
• non-UK corporate funds, such as a Société d’investissement à Capital Variable (SICAV) or Irish Collective Asset-management Vehicle (ICAV)
• non-UK co-ownership arrangements, such as Fonds Commun du Placement (FCP) or Common Contractual Fund (CCF)

However, not all non-UK investment funds will fall within the definition of an offshore fund. For example, a non-UK partnership fund is not an offshore fund.

If you are not sure whether you have an interest in an offshore fund, then you should ask the fund manager who should be able to tell you.

Do I have an interest in a reporting offshore fund?

Offshore funds can be ‘reporting’ or ‘non-reporting’.

A reporting offshore fund is an offshore fund that has applied to HMRC, been approved and maintains its status as a reporting fund. A list of reporting funds can be found here.

The fund manager will be able to tell you whether the fund has applied to HMRC to become a reporting fund.

What does it mean if I have an interest in a reporting offshore fund?

A reporting offshore fund is required to report its income to HMRC and to its UK investors for each reporting period. Income which is reported in this way is known as ‘reportable income’.

Reportable income is given as an amount per unit, so for each reporting period you will need to multiply the amount of reportable income per unit by the total amount of units you hold at the end of the reporting period.

UK investors are taxed on their full share of reportable income, even if it has not been distributed. The difference per unit between your reportable income and the income that is distributed to you is known as ‘excess reported income’.

The fund may operate equalisation arrangements in which adjustments are required in the calculation of reportable income. Consult your fund manager and the Investment Fund Manual for further information.

How do I report my income from a reporting offshore fund?

You should report any income from reporting funds, including any excess reported income, on your Self-Assessment return.

The type of income you are treated as receiving depends on the type of offshore fund you hold an interest in:

• if the offshore fund is a company and more than 60% of its investments are in interest bearing assets, then you should report the income as interest — this type of fund is commonly referred to as a ‘bond fund’
• if the offshore fund is a company but is not a ‘bond fund’, then you should report the income as a dividend
• if the offshore fund is ‘transparent’, then income arising from the offshore fund retains its original character — this could be a mixture of different types of income (for example, property income, dividends, or interest) which you should report separately.
• if the offshore fund is a unit trust which is non-transparent, then you should report the income as miscellaneous income

If you are unsure about which of these categories applies to you, you should contact the fund manager to seek advice.

Where in my Self-Assessment return do I report my income?

Income from a fund, including excess reported income, should be returned in the Foreign Pages (SA106) tax return in the following areas:

• if the income is treated as interest, then you should report it on pages 2 and 3 under ‘Interest and other income from overseas savings’
• if the income is treated as a dividend, then you should report it on pages 2 and 3 under ‘Dividends from foreign companies’
• if the income is treated as property income, then you should report it on pages 4 and 5 under ‘Income from land and property abroad’
• if the income is treated as miscellaneous income, then you should report it on pages 2 and 3 under ‘Interest and other income from overseas savings’

If you do not know which category the income from your offshore fund falls into then you should contact the fund manager to seek advice or speak to a tax advisor.

What information will a reporting offshore fund provide to me?

Reporting funds are required to provide you with a report so that you can determine your share of the reportable income.

This report will normally be issued electronically (for example, as a PDF document attached to an email) or on a publicly available website. The report will provide the information you need to determine your excess reported income from the fund.

When do I need to declare my income from a reporting offshore fund?

The normal tax rules apply to income which is distributed by the offshore fund. You would normally need to report income in the tax year in which it is received.

Excess reported income is treated as being received on the ‘fund distribution date’. The fund distribution date for a reporting fund is 6 months following the last day of the reporting period.

For example, if the reporting period ends on the 31 July 2021, then the fund distribution date is 31 January 2022. The excess reported income for that period will need to be reported in the Self-Assessment return for the 2021/2022 tax year.

If you have not received a report from the fund manager by the time you need to file a Self-Assessment return, then you should include your best estimate of the excess reported income. You may then need to file amended returns when the report is finally received.

What happens when I dispose of my shares/units in a reporting offshore fund?

If you dispose of your shares/units in a reporting offshore fund, you will be subject to capital gains tax on any gain you realise.

Any excess reported income which arose to you during the period in which you owned the shares/units can be deducted when calculating your capital gain. This ensures you are not subject to double tax on the excess reported income.

Do I have an interest in a non-reporting offshore fund?

A non-reporting offshore fund is a fund that has not obtained reporting status (or has left or has been excluded from the reporting fund regime). The fund does not report its income to HMRC.

What does it mean if I have an interest in a non-reporting offshore fund?

For non-reporting funds, there is no equivalent excess reported income. That means you will only be taxed on income which is distributed to you.

When income from a non-reporting offshore fund is distributed to you, the type of income you are treated as receiving for UK tax purposes depends on the type of offshore fund you hold an interest in.

The four different types of offshore fund explained above under ‘How do I report my income from a reporting offshore fund?’ also applies to non-reporting offshore funds. If you are unsure about which of these categories applies to you, please contact the fund manager to seek advice.

What happens when I dispose of my shares/units in a non-reporting offshore fund?

If you dispose of your shares/units in a non-reporting offshore fund, any gain you realise will normally be treated as an ‘offshore income gain’ unless an exception applies in which case consult the Investment Funds Manual.

You will be subject to income tax, rather than capital gains tax, on any offshore income gain you realise.

Where in my Self-Assessment return do I report my offshore income gain?

Report your offshore income gain in the Foreign Pages (SA106) on page 6 ‘Other overseas income and gains’.

What do I need to declare if I hold my investment in an offshore fund through an ISA?

Investments in non-reporting and reporting offshore funds can be held within the ISA wrapper.

If your investment in the fund is held through an ISA, then you do not need to declare the income or gains from these funds.