Offshore Fund reporting
If you plan to market your offshore Fund to UK investors, then this is relevant to you.
UK individuals would prefer to pay tax at UK capital gains tax rates (generally 20%) rather than income tax rates (up to 45%).
To ensure a Fund can offer UK investors this comfort then the Fund must have Reporting Fund Status (RFS) (with such funds often referred to as ‘Reporting Funds’). UK investors can then pay UK capital gains tax rates on any disposals, providing they pay income tax on their share of any income in the Fund, even if this income is not paid out.
There are a few hoops to jump through to get a Fund registered for RFS, as well as ongoing compliance requirements but given the value RFS provides then these are obstacles worth tackling.
Registration
Registering for RFS is straight forward. An application form, which asks questions about the Fund, would need to be completed and submitted to HMRC alongside other documents for example the Fund’s prospectus.
The application must be made before the end of the accounting period for which the Fund requires RFS eg. for a 31 December 2022 year end, the application must be submitted by 31 December 2022.
A similar application will also be required for any share classes that require RFS that are launched later.
Compliance
Once the initial application has been made, the Fund must provide annual reporting to HMRC and its investors within 6 months of its year end eg. for 31 December 2022, reporting is due before 30 June 2023.
This report will include a calculation of the Fund’s Excess Reportable Income (ERI) on a share class by share class basis. ERI is essentially the income in the Fund that has not been distributed and UK investors need this figure to include on their tax return.
A timeline of the relevant dates and requirements is shown below.
Top tips
- Don’t miss the deadline! HMRC will not take late applications and it is no fun explaining to UK investors that they will pay income tax on some of their ‘investment’
- Although the initial application can include all share classes, any new share classes must be registered separately if RFS is required. Don’t miss this deadline either!
How we can help you
We can help Funds to obtain RFS and undertake the annual reporting.
This document is designed to give a high-level overview of RFS however we are on hand to help with the more technical aspects of this regime. Advising on:
- Whether a Fund meets the definition of an ‘Offshore Fund’
- Bond Funds and how income streams may differ when UK investors invest in these vehicles
- Corporate considerations of investing into an offshore Fund eg. how a UK corporate investor will be taxed depending on whether the Fund has RFS or not
- Fund of Funds and computational requirements
- Converting a non-reporting Fund into a Reporting Fund and advising on relevant UK investor elections to ensure that any uplift moving forward can be taxed at capital gains tax rates
- How to reflect the mechanics of this regime in a Fund’s prospectus when marketing the Fund
