Letters from the tax man are dropping on the doormats of wealthy investors with money in offshore collective investment funds.
The letters are part of a HM Revenue & Customs tax blitz on wealthy investors under the guise of checking that dividends and gains from the funds are reported correctly on tax returns.
The Chartered Institute of Taxation (CIOT) revealed the move after HMRC published a briefing note.
HMRC’s Wealthy and Mid-Sized Business Compliance team issued the note stating that research had identified UK investors with stakes in the funds.
The research follows the switch-on of data swapping between tax authorities under the Common Reporting Standard.
Victims of error
The network of more than 100 countries share information about tax residents from other countries who have cash and investments within their jurisdictions.
“We are tackling these risk areas through preventative measures by issuing this ‘one to many’ nudging letter directly to a subset of the wealthy population identified as being at the greatest risk of falling victim to these errors,” said the HMRC note.
HMRC also instructs investors to bring their tax filings up to date by checking they have correctly declared income and gains from the funds.
Offshore fund rules define ‘non-reporting’ and ‘reporting’ funds and tax interest on investments in a different ways, which means investors must check which category their funds fall into and that income tax or capital gains tax is applied correctly.
An explainer sent with the letter details how each type of fund is taxed.
What is a collective investment fund?
A collective investment fund is an investment with a professional fund manager that pools cash from several investors across a portfolio of assets to spread risk. Popular assets are listed shares, property and other funds.
The funds are also known as unit trusts, investment trusts or open ended investment companies (OEICs). Some funds are exchange traded funds which track an index without any active management.
The tax probe impacts any British expat who remains UK tax resident while investing in an offshore collective investment fund or who lives overseas but sources income or gains from a UK collective investment fund.
