Reporting fund status

For UK tax, an offshore fund is a mutual fund based outside the UK; most ETFs listed in London are domiciled in Ireland or Luxembourg. Under the Offshore Funds (Tax) Regulations 2009 (SI 2009/3001), such a fund can apply to HMRC to be approved as a reporting fund. HMRC publishes the approved funds, with their ISINs, in a list on GOV.UK that it updates every month.

The status decides how a UK investor’s gain is taxed outside an ISA. On a reporting fund the gain is a capital gain. On a non-reporting fund, or one that was non-reporting for part of the time it was held, it is an offshore income gain: treated as income arising at the time of the disposal and taxed at income tax rates (regulations 17 and 18).

A reporting fund must make a report available to investors within six months of the end of each reporting period, and may do so on a website (regulation 90). Where its reportable income is more than it paid out, the excess, called excess reportable income, is treated as an extra distribution made on the fund distribution date, six months after the period ends. It is taxed as a dividend or, for a fund more than 60% in interest-bearing or similar investments, as interest. An accumulating fund pays nothing out, so all of its reported income is excess.

Because excess reportable income has already been taxed as income, it is added to the cost of the holding when a capital gain is worked out (regulation 99). There is no UK tax on income or gains from investments in an ISA, so neither charge arises on a fund held in one.