It is a question that is often asked by both investors and fund managers alike, but the answer is often far from straight forward.
The UK reporting fund status (RFS) regime provides an advantageous tax treatment for UK individual investors in offshore funds by allowing them to access lower capital gains tax rates, as opposed higher income tax rates which is the default position. Entering the regime is optional, and each and every share class / series can choose to opt in or stay outside the regime. However, to comply with the regime, reporting funds must provide to HMRC a calculation of ‘reportable income’ and determine whether any ‘excess reportable income’ (ERI) arises per reporting share class or series. A report is sent to investors with the amount of ERI annually, to be included in their tax return as income therefore creating a dry tax charge.
When determining whether the RFS regime will be beneficial a number of factors need to be considered, including:
- Investor tax profile;
- Investment strategy;
- Fund / fee structure;
- Income yield;
- Performance;
- Volatility; and
- Tax rate.
At Larkstoke we assist a wide range of offshore funds in meeting their obligations under the RFS regime – be it from the initial application to HMRC and the annual submissions, to any advice required along the way. For more details click here.
To assist both investors and fund managers we have developed a tool to quickly analyse the benefits of the regime for UK based individual investors. By inputting a number of variables our RFS tool quickly runs a Monte-Carlo simulation and calculates the potential economic benefit over a 1-5 year time horizon. The analysis takes seconds to run and all variables can quickly be modified – making it a powerful tool for scenario planning or analysing the impact of tax rate changes.
With potential changes to capital gains tax rates and overhaul of the UK’s non-dom regime from April 2025 investors and fund managers will need to reassess the benefit of the RFS regime. We would encourage anyone wishing to make an informed decision on the benefits of the regime based on their own data to get in touch.