- April 16, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Understanding Taxes on Excess Reportable Income for Offshore Funds and ETFs
Can you provide me with insights on the tax implications of Excess Reportable Income for offshore funds and ETFs, specifically when held in an investment account outside of an ISA or SIPP? It is important to note that in the UK, all ETFs are considered offshore funds.
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- It is crucial to reference the Excess Reported Income for each ETF on the asset manager’s website, as the reported income varies among different managers. HMRC assumes that the reported income is received by investors 6 months after the fund reporting date.
- For distributing funds, the Excess Reported Income is usually minimal. In the case of accumulating funds, it represents the dividends reinvested but not distributed to investors.
- When it comes to shares, dividends impact the share price as investors anticipate future dividends. However, is there a different scenario with ETFs?
- For instance, if an accumulating ETF reports its ERI on 31-Jan, and an investor purchases and sells it within the reporting period, are taxes on the reinvested dividends exempt?
- ETF prices do not exhibit a drop on the annual reporting date, unlike shares following dividend issuance. This peculiarity in the UK tax system raises questions on tax treatment compared to countries where dividends and capital gains are subject to similar tax rates.
### Exploring Tax Systems in Other Countries
While many retail investors opt for tax-efficient wrappers like ISAs and SIPPs for holding ETFs, it is essential to understand the tax implications outside of these accounts. The comparison of taxation policies across jurisdictions sheds light on potential disparities in treating dividends and capital gains.
With the assistance of the AI Legalese Decoder, individuals can gain clarity on the intricate tax regulations governing Excess Reportable Income for offshore funds and ETFs, enabling informed decision-making and strategic financial planning.
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Your example is right. However there is a similar “Bed and Breakfast” rule where you can’t re-buy the ETF immediately after the reporting date.
From the Vanguard guide:
“Note: If you sell your shares and buy them back within a 30-day period (and this activity straddles the reporting period end) you’ll still need to calculate ERI for your holding, as if you continued to hold the shares at the reporting period end.”
Hi /u/not_who_you_think_99, based on your post the following pages from our wiki may be relevant:
* https://ukpersonal.finance/pensions/
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^(These suggestions are based on keywords, if they missed the mark please report this comment.)
If you buy after one reporting date and sell just before the next one, you would realise a gain/loss for CGT purposes.
If you instead hold through the reporting date, you increase your cost basis by the ERI amount, and don’t realise any gain/loss until you decide to sell. (And have dividend tax liability on the ERI amount.)
Depending on your tax position, one or other could be better. It’s not really a free lunch.