UK Non-Reporting Funds Offshore Funds

Reporting funds or non-reporting is a frequent topic of conversation. Frequently explaining what it means to clients. Cross-border investment can be tricky, especially when living under taxation in the UK and the US. Whether you are a UK resident with US assets, or you are a non-UK resident with worldwide assets, you need to know what reporting and non-reporting funds mean to plan your taxes. In this article, we will cover the impact of these fund types and what to do with them to minimise your taxes.

The Basics: Reporting Funds and Non-Reporting Funds.

Reporting Funds

Reporting funds are offshore collective investments that have been given reporting status by HMRC. The funds send transparent income statements to investors and HMRC. For UK residents:

  • Dividend Taxation: All fund-provided dividend income, distributions or withdrawals are to be reported and taxed according to the investor’s marginal income tax rate (up to 45%; 38.1% on dividends).
  • Capital Gains Taxation: Gains on disposal of units are liable to capital gains tax (CGT) of up to 24% (upped from 20% on 30/10/2024).
  • Reporting funds are taxed at a better rate than non-reporting funds. CGT rates can be leveraged by investors, and the rates are lower than income tax so reporting funds is the choice of many UK taxpayers.

Non-Reporting Funds

Non-reporting funds are not HMRC reporting, and as such, pay penalty tax by UK residents:

  • Taxation on Income: Only distributed income is subject to tax but disposal proceeds are ordinary income and subject to income tax of up to 45%.
  • Losses: Capital losses can’t be used to offset income, which decreases tax efficiency.

Due to their tax exclusion, non-reporting funds are generally not opened up to UK investors unless they have a specific reason for doing so.

Important Things to Remember for UK Citizens with US Assets

If you are a UK resident with a US brokerage account, your investments usually tend to be US mutual funds or ETFs. By default, they will be considered offshore investments by HMRC (unless the fund is making an income declaration to the UK Tax Authorities each year), and are therefore subject to the following rules:

  • Taxation: Gains are treated as “offshore income gains” taxed at the income tax rate rather than the CGT rate.

To Avoid Pitfalls: UK taxpayers should prioritise US funds with reporting status to avoid double taxation. This is sometimes provided through HMRC’s public database of permitted funds. However, this is generally not achievable because of the Key Information Document (KID) rules outlined below.

International Remittances and the Remittance Basis For Non-UK Domiciled Citizens and Other Remitting Persons

Foreign-domiciled people, especially those new to UK residentdom, can benefit from the remittance basis of taxation. This allows them to:

  • Withdraw offshore income and gains from UK tax unless paid to the UK.
  • Maintain access to personal tax-free allowances for the first 7 years.

But remittance basis diminishes after seven years and incurs £30,000 annual charge. Above that, most taxpayers go into arising basis, and declare worldwide profits and losses. At this stage, failing to report money will land you with hefty tax bill if you don’t act early.

US UK Tax Remittance Ceases April 2025

On 6 April 2025, the UK will officially transition away from its traditional domicile-based tax system to a new regime based entirely on residence. This shift effectively abolishes the long-standing benefits of the non-dom regime, including the remittance basis. Its replacement is the foreign income and gains regime (FIG regime), linked to the number of years of UK residency. The impact on the non-dom community living in the UK and for those who are coming to the UK shows careful planning needs to be done before 6 April 2025.

Options for your investments, if previously you’ve done taxes on a remittance basis :

  • If you have not been a UK resident in any of the 10 previous years? For the first 4 years, you are a UK resident, and non-UK income and gains from UK tax can be sheltered under the FIG Regime. You will need to file a tax return to claim the relief.
  • A Temporary Repatriation Facility (TRF) will be available allowing you to remit previously accrued foreign income and gains to the UK from 6 April 2025 at a reduced rate. This relief will be available for a period of three tax years. To use the TRF, taxpayers will be required to designate FIG to which the relief will apply within their self-assessment tax return. Designations made during the 2025-26 and 2026-27 tax years will be taxed at a flat rate of 12%, with the rate rising to 15% for designations made during the 2027-28 tax year.
  • If a UK resident under the statutory residence test for 10 out of the previous 20 year, therefore becoming “long-term resident” (LTR), you will be liable to UK inheritance tax on your worldwide assets. If not a LTR only the UK situated assets will only be subject to UK inheritance tax. You may remain subject to Inheritance Tax (IHT) on worldwide assets for up to 10 years after leaving the UK. Length of IHT Exposure (calculated by the duration of UK residency prior to leaving):
    • If UK resident for 10–13 years, the IHT tail is 3 years.
    • For each additional year of UK residency beyond 13 years, the IHT tail increases by 1 year.
    • After 20 years or more of UK residency, the IHT tail is fixed at 10 years.

Practical Steps for Investors

UK Residents

  • Choose HMRC funds registered in the US to take advantage of CGT rates.
    • This has difficulties:
      • US Brokerage accounts are increasingly preventing non-residents from buying US-registered funds because this puts the US platform into the jurisdiction of the non-resident, where the platform may not be authorised to offer US-registered funds. This often prevents dealing in US funds with common US brokerage accounts like, Schwab, Internative Brokers, Fidelity and others.
      • Retail investors cannot often access US ETFs or Mutual Funds because of PRIP rules. PRIIPs* Regulation deals with pre-contractual information in the form of key information documents (KIDs). These documents have to be provided by those producing or selling investment products to consumers. American mutual funds do not produce them, so UK retail investment platforms do not offer these funds.
        • *Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation have applied since 1 January 2018. The UK adopted its own PRIIPs KID Regulation Following Brexit from 1 January 2023 with the introduction of the UK PRIIPs KID for investors in the UK.  The UK regulator allows EEA UCITS KIIDs or NURS KII to continue to be produced and made available to UK investors until the end of 2026.
  • Update and manage investments when coming to the UK if currently overseas. Edale offers its Portfolio Review Service if you want to know if your current portfolio fits US-UK rules.
  • Consider building a direct security portfolio to avoid the complexities of collective investment tax treatments. Be aware that finding investment platforms willing to open accounts for US taxpayers can be challenging due to FATCA compliance burdens. Edale offers investment accounts for Americans with no minimum investment requirement, providing a straightforward solution.

Non-UK Domiciled Individuals

  • The remittance basis was during the initial UK residence, but the plan for the arising basis changed 7 years later. Now its April 2025 with an opportunity for rebasing assets and bringing them to the UK. This is a complex situation and
  • Read HMRC’s list of tax-efficient offshore investments and check the list of approved funds.

Final Thoughts and advice on reporting funds

When you invest as a UK resident or non-UK resident you have to get your head around complicated tax rules and eligible investments for you. Reporting funds have clear tax benefits for the majority of UK citizens but they are difficult for US taxpayers given the citizen based tax responsibility into the USA. In the meantime, UK taxpayers outside the UK will need to balance the transition to UK residency with some support and rebasing assets to comply with both the UK and US.

You will need to plan for your taxes ahead of time and get a professional advisor to make the most of your investments and save yourself money from costly errors. The next time you’re unsure what to do, hire an expert to help you stay on track and get the most tax savings possible. Edale are FCA regulated to advice and support to UK US people and other individuals with global lives. If you’d like to understand more about this topic and the options available to you, please get in touch with the team through email, WhatsApp us or booking a free appointment. Alternatively, you can call us directly at +44 207 99 35 360.

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