Question
Recently the tax implications of ETF have been commented and explained by various advisers.I have an ishares ETF Australia which is seeking the Reporting Status.Am I correct in saying that if I were to sell the holding at a profit income tax will be payable on the gain rather capital gains?
And if I wait until the reporting status is granted what will be the tax implication considering that the investment was bought during the 'seeking period' and sold during reporting period?Income tax or capital gains?Answer
[Note: the US domiciled version of this fund was launched in March 1996, I’ve assumed you hold the Dublin version but the answer below applies to both]
I’ve just thumbed through the HMRC offshore funds manual and the position for investors in your shoes seems to be covered by ‘Regulation 48’.
When a non-reporting fund becomes a reporting fund UK investors may make a ‘deemed disposal’ at the time of conversion. This means you can treat your tax position as if you sold and repurchased the fund on the conversion date. You’ll be liable to income tax on any gains up to the point of conversion, but gains thereafter will be subject to capital gains tax.
You’ll need to detail this via your tax return covering the tax year in which the conversion takes place. There’s no special section on the return for deemed disposals, so you should report the offshore income gain as you would normally and show your calculations in the relevant notes section.
By the same token, if you sell the fund before reporting status is granted then any gains will be subject to income tax.
For the benefit of other readers (this isn’t relevant to your ETF), where a fund qualified for ‘distributor’ status under the old offshore rules (pre 1 December 2009) then provided it successfully applies for reporting status gains will continue to be subject to capital gains tax and not income tax.
Recently the tax implications of ETF have been commented and explained by various advisers.I have an ishares ETF Australia which is seeking the Reporting Status.Am I correct in saying that if I were to sell the holding at a profit income tax will be payable on the gain rather capital gains?
And if I wait until the reporting status is granted what will be the tax implication considering that the investment was bought during the 'seeking period' and sold during reporting period?Income tax or capital gains?Answer
[Note: the US domiciled version of this fund was launched in March 1996, I’ve assumed you hold the Dublin version but the answer below applies to both]
I’ve just thumbed through the HMRC offshore funds manual and the position for investors in your shoes seems to be covered by ‘Regulation 48’.
When a non-reporting fund becomes a reporting fund UK investors may make a ‘deemed disposal’ at the time of conversion. This means you can treat your tax position as if you sold and repurchased the fund on the conversion date. You’ll be liable to income tax on any gains up to the point of conversion, but gains thereafter will be subject to capital gains tax.
You’ll need to detail this via your tax return covering the tax year in which the conversion takes place. There’s no special section on the return for deemed disposals, so you should report the offshore income gain as you would normally and show your calculations in the relevant notes section.
By the same token, if you sell the fund before reporting status is granted then any gains will be subject to income tax.
For the benefit of other readers (this isn’t relevant to your ETF), where a fund qualified for ‘distributor’ status under the old offshore rules (pre 1 December 2009) then provided it successfully applies for reporting status gains will continue to be subject to capital gains tax and not income tax.
Read this Q and A at http://www.candidmoney.com/questions/question275.aspx
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