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Wealth firms slam fund groups on offshore fund tax reporting

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Wealth firms slam fund groups on offshore fund tax reporting

Frustration has mounted among wealth firms, which believe that asset managers could do more to report potential tax liabilities on offshore funds.

Although undistributed profits from offshore funds, known as excess reportable income (ERI), have been liable for income tax since 2009, the issue has come into focus following HMRC’s ‘Requirement to Correct’ (RTC) rules.

This set UK taxpayers a deadline of 30 September to declare any offshore tax liabilities, including ERI within offshore or ‘reporting funds’ – or face a fine of at least 100% of the undeclared liability, potentially rising to 200%.

However, wealth managers have run into difficulties trying to source ERI information and are calling on fund groups to make this easier to access.

A managing director of a wealth management boutique, who preferred to remain anonymous, explained: ‘Asset managers do not currently have a means of providing ERI information to third-party custodians, which means there is taxable income that is not being reported in tax packs. This is a massive industry problem. Asset managers need to pull their finger out.’

Another investment manager from a national wealth management firm said: ‘Wealth managers are only as good as the information they receive – and a lot of asset managers are not providing this information.’

Criticisms have been levelled at asset managers and ETF providers with offshore fund ranges. They include BlackRock, iShares and Hermes.

As this information is not automatically provided to custodians, wealth managers have had to source it themselves, inputting it manually into their systems.

Consultants at KPMG have sought to assist by building a free database with information on reporting funds. It estimates that ERI data is available for 50-60% of all reporting funds via the tool.

If ERI information is not available, Iona Martin, a senior tax manager at KPMG, suggests that wealth managers make this clear in their tax reports, so clients can instruct a tax adviser to find the information.

She suspects that HMRC could introduce further measures regarding historic offshore tax liabilities, which would put asset managers under further pressure.

‘With increasing transparency and common reporting standards, I think we will definitely see a greater onus put on asset managers to make that information more readily available,’ she added.

Grant Parkinson, chief operating officer at Brewin Dolphin, said the firm is working with external advisers to access relevant data to ensure that client reporting meets requirements.

Meanwhile, a spokesperson for Rathbones said the group has sought to ensure that all potential tax liabilities have been reported to clients and their tax advisers receive any assistance they need.

A spokesperson for Nutmeg added: ‘We report excess reportable income to our customers via their tax packs. We contact providers to gather this information and send it on to our customers. Some providers are quicker to provide the data than others.’

A spokesperson for BlackRock said the firm had made ERI data publicly available for funds with UK reporting status.

‘We haven’t heard a lot of feedback about improving the operational availability of the ERI data, but if difficulties are arising for some clients then we will listen and seek ways we can help,’ the spokesperson added.

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