92: Taxation of offshore investment funds – a complex business

Judith Millar Partner

Paul Gallagher Tax Director

In our blog post of 11 September 2019, HMRC targets companies holding UK residential property, we reported on the so-called ‘nudge letters’ that HMRC had sent to non-resident companies which it believes may hold UK residential property and to the occupiers of such properties seeking information about the owner.

The next group in HMRC’s sights is individuals whose tax affairs suggest that they might be investors in overseas investment funds who are the recipients of the latest bulk mail out from HMRC.

Unlike the residential property letters which were seeking information, the latest letter is intended to be educational.

Reporting and compliance regarding investments in overseas investment funds and, in particular non-reporting funds, is complex. HMRC’s Wealthy and Mid-Sized Business Compliance team has identified that mistakes are often made when taxpayers dispose of an interest in a non-reporting fund. The aim of the letter is to highlight particular issues for those who might have such investments, so that they can take preventative measures well ahead of the self-assessment filing deadline of 31 January 2020 for the 2018/19 tax year.

The key point is that anyone receiving such a letter should not panic. These are standard letters and are not targeted at individual taxpayers. Receipt of such a letter is not a suggestion that anything is wrong or that additional tax is due. A person’s tax affairs may well be wholly correct and up to date. However anyone receiving such a letter should pause to reflect, asking themselves whether they have properly dealt with their returns for this type of asset class, and indeed other income and capital receipts for both the current tax year and past years.

Anyone who is concerned that reporting of such funds might not be fully compliant, or who may generally be uncertain about their tax affairs, should consider taking advice.

These bulk mail outs are not new but with the range of information which HMRC is now receiving via various external sources it is clear that they will become more frequent and of course more targeted initiatives may also result.