What to keep in mind when you’re a UK taxpayer and you hold your money in Stocks
If you’re a UK taxpayer — individual, or business — holding your money in Stocks can impact the way you pay tax.
What you need to report to HMRC is determined by your circumstances. Keep in mind that offshore reporting funds and the tax rules governing the regime are complex.
Wise can't provide tax advice and we recommend that you seek advice from a tax adviser.
What's the difference between UK and non-UK investment funds?
Investment funds in the UK are generally required to distribute any income they earn. Offshore funds don’t have this requirement. . Funds based outside of the UK (offshore funds) don’t have this requirement. Offshore funds that comply with the UK Reporting Fund regime are likely to retain any earned income — this is known as Excess Reportable Income (ERI).
ERI applies to any UK investor that invests in an offshore reporting fund outside of an Individual Savings Account (ISA) or a Self-Invested Personal Pension (SIPP). ERI is deemed to be distributed 6 months after the fund accounting year ends. It will either be taxed as dividend or interest income, depending on the underlying assets of the fund.
What’s the fund status of the Wise Assets?
Currently, Wise only offers UK reporting funds. This is to preserve the capital gain treatment of disposals. We are committed to provide each customer with the relevant data and information to manage any ERI impact.
Keep in mind: if you invest in an offshore fund outside of an ISA or SIPP that does not have UK reporting fund status, any gain on the disposal of any units will be taxed as ordinary income and not as capital gain.
What is the impact of the Wise Assets to UK taxpayers?
The underlying assets of any UK reporting fund determines how HMRC will treat any ERI or distributed income from the fund.
The iShares World Equity Index Fund (ISIN: LU0852473015) is primarily composed of equity securities (e.g. shares), so any ERI earned by this fund should be considered as dividend income.
ERI is eligible for annual allowances in the UK. Please note that UK allowances are subject to change and are dependent on each person’s individual circumstances. You can find more information in the HMRC publications on dividends and interest.
How does Excess Reportable Income affect capital gains?
For UK tax residents, any gain from the disposal of an investment in a reporting fund is subject to capital gains tax. The ERI amounts subjected to income tax should generally be added to the base cost of the investment.This will reduce the gain subject to capital gains tax.
This will be reflected in your UK tax statements from 15 December 2022 if applicable.
Is there anything else I should keep in mind?
The UK individual tax year runs from 6 April – 5 April with a self-assessment and payment deadline on 31 January of the following year.
The iShares World Equity Index Fund (ISIN: LU0852473015) has an accounting year end of 31 March. It is deemed to distribute any income to you on 30 September, 6 months after the accounting year ends.
If you sold units in the fund between 6 April 2021 and 5 April 2022, you may need to include any capital gains/losses on your 2021–22 self assessment due on 31 January 2023.
If you held units as of the end of the fund’s accounting year, then on 30 September 2022 you would have been deemed to receive ERI, which may need to be included in your 2022–23 self assessment and will appear on your tax statement next year.
Depending on when you request a tax statement from Wise, the basis in any units sold may have been adjusted by the ERI deemed to be distributed to you on 30 September 2022. The delay in basis adjustment is due to the timing of BlackRock’s publication of any ERI.
Businesses may calculate the financial year differently and should consider when each type of income was earned or deemed to be earned.