OFM27200 - Reporting funds: tax treatment of participants in reporting funds: general provisions - Regulation 94
A reporting fund is required to make a report to its participants for each reporting period (whilst this is principally for UK investors for the purposes of the regulations, other participants such as other offshore funds with an interest in a reporting fund may also need a report). Regulation 92 sets out what each report must contain (see OFM26200), which includes details of sums actually distributed to participants as well as sums reported to them that represent the excess of the reported income of the fund over the sums actually distributed.
Sums actually distributed will be subject to a charge to tax in accordance with the normal provisions within the Tax Acts relating to the type of income in question (for example, a corporate fund would normally distribute income in the form of foreign dividends and in the hands of UK investors they would be subject to the normal rules relating to such income; the Savings and Investment Manual (SAIM) on the HMRC website contains detailed guidance on the treatment of UK investors with foreign income generally and the following pages of this manual provide more details specifically related to investments in offshore funds).
Where the whole of the reportable income of a fund is not distributed then the excess is treated in the following ways -
Reporting fund which is a non-transparent fund
Where the fund is non-transparent for income purposes (such as would be the case for an open-ended investment company, or ‘OEIC’ for example - the International Manual (‘INTM’) on the HMRC website contains details of whether particular entity types are transparent or opaque for income purposes) then the Tax Acts have effect as if the excess of the reported income over the distributions made by the fund in respect of the reporting period were additional distributions made to the participants in the fund in proportion to their rights (regulation 94(1)). Where an investor holds some interests that are grandfathered (as a result of regulation 30) and some that are not, the excess specified in regulation 94 is reduced proportionately.
The tax treatment of the excess for UK investors will depend on whether they are within the charge to income tax or corporation tax and the form of the non-transparent fund - see the following pages for further details.
Reporting fund which is a transparent fund
In the case of a reporting fund which is a transparent fund, such as would be the case for certain unit trusts, for example, the Tax Acts have effect as if the excess of the reported income over the income of the fund for the reporting period were additional income of the participants in proportion to their rights (regulation 94(2)). The tax treatment of UK investors on the excess will depend on whether they are within the charge to income tax or corporation tax - see the following pages for further details. Where an investor holds some interests that are grandfathered (as a result of regulation 30) and some that are not, the excess specified in regulation 94 is reduced proportionately.
Date treated as made
The ‘excess’ in both cases is treated as made on the fund distribution date to participants holding an interest in the fund at the end of the reporting period. The “fund distribution date” for a reporting period of a reporting fund is the date six months following the last day of the reporting period (regulation 94(4).
If a participant disposes of an interest in a reporting period and S106A TCGA 1992 (Identification of securities: capital gains tax) applies to identify the whole or part of that interest with an interest acquired in the next accounting period, then the disposal is ignored and the participant is treated as having held that interest at the end of the earlier period. (regulation 94(3A).
In the event of a report being issued to investors more than six months after the day immediately following the last day of the reporting period, it is possible that UK taxpayers may have already filed tax returns in the absence of details of the excess of reported income. In such circumstances, in accordance with Self Assessment obligations, taxpayers should already have included details of their best estimate of the excess, and they may need to file amended returns when the details are finally received.