Excess Reported Income: how DIY investor manage it?

tellme_why

Hi,
How DIY investors deal with Excess Reported Income "ERI" calculations for tax return for UCITS funds held outside ISA or SIPP?

Calculation looks overwhelmingly complicated and extremely time consuming to me.

I understand that investing platforms such as Vanguard or Fidelity only provided the distributed dividends "CTC" in their tax summary or Annual tax voucher but leave to investor calculating the ERI.

see also https://www.fidelity.co.uk/assets/pdf/personal-investor/about-fidelity/tax/annual-tax-voucher.pdf

For example Vanguard FTSE 100 ETF is UCITS (IExxx ISIN) hence classifies as "UK reporting fund" and apparently subject to ERI calculation rules which I still don't get how they work.

Apparently the only way to calculate ERI is to hire an accountant which defeat the purpose of DIY investing.

Can I ask how investor deal with this (other than using ISA / SIPP or GBxxx only funds).

Do people use special software or just avoid altogether non-UK funds?

Many thanks

masonic

The calculations aren't complicated. You look up the published rate per unit and multiply by the number of units you held on the notional distribution date. You only need to declare the income to HMRC if it will result in a tax liability (it is treated as a foreign dividend, along with any other income from the non-UK domiciled fund) or you need to complete a tax return.

Some more info here: https://monevator.com/excess-reportable-income/

xylophone

https://www.vanguardinvestor.co.uk/investing-explained/general-account-tax-information

Does the above assist?

tellme_why

.. why investing platform do not include this piece of information in the tax voucher?..

it's not that easy to calculate either, in particular when the fund applies equalisation and one has to account for the reporting fund period, distribution period, no matching the tax year for multiple ETFs.

Try to figure it out in the event investor bought/sold units in multiple ETFs over a year and fund reporting period does not match with tax return period. One need a proper database to link transactions with the ERI periods. Have you tried doing it ?

No to mention that ERI is only available in pdf and one have to search the pdf, copy the numbers across in Excel and create some calculation rules..

tellme_why

Many Thanks Masonic
"The calculations aren't complicated. You look up the published rate per unit and multiply by the number of units you held on the notional distribution date" - I am not sure this is the case. The complication is that ERI does not arise at time of distribution but on the last day of the fund reporting period apparently which can be six month prior the distribution.

tellme_why

thanks Xylo,
I have seen this - which suggest the DIY investor got to do it itself - Vanguard does no provide the number to plug into the self -assessment -.

dales1

It's an extra chore, but it's not complicated.
masonic's link explains it all.
From xylophone's link to Vanguard, download the VF Plc Excess Reportable Income: 30 June 2018
report for year ended 30.6.18.
This shows the ERI per unit you held on that date 30.6.18.
Multiply the ERI per unit by the number of units held on that date 30.6.18.

Per Note 1 at the foot of that report it confirms that this ERI is deemed to be received for tax purposes on 31.12.18.
So you simply add it to your actual foreign income for the 2018/19 tax year - job done.
Dales

bowlhead99

tellme_why wrote: »

.. why investing platform do not include this piece of information in the tax voucher?..

Primarily because it's easier for them not to, and their customers and prospective customers are often focused on getting lower fees rather than value added services, and the customer is always right.

So they listen to 'the customer' [where the customer is collectively 'you plus tens of thousands of other clients'] and they hear that on average, the customer wants to keep the fees down as a priority. The result is that they provide the lower fee service without the value-add. The tax analysis is something which you might personally prefer to have had bundled into the service, but which other customers might not want to have bundled into the service that they receive and pay for.

If you ask a stockbroker to provide you a nominee service and dealing service to buy some exchange-traded investments on the stock exchange, they'll do just that, and tell you what (if any) dividends were received on your behalf in the period of ownership. However, what you are looking for is what income was made by the fund and *not* received by the broker in your period of ownership because the fund choose not to distribute it.

It's *you* that wants the information about what profits were made in the offshore fund and not distributed to the broker for you. The broker doesn't need that info because your personal tax return is not his responsibility. He needs the info about money he receives on your behalf, because he must look after the money and communicate the info to you. But he doesn't need that info about ERI, because that's quite specifically all about money that was never given to him to look after for you.

You generally find that when you are investing in UK OEICs and unit trusts, investment platforms who act as intermediary/ distributor in the chain of ownership will give you the info about both your distributed and accumulated undistributed income in a consolidated tax certificate. That's straightforward because a UK OEIC is required by regulation to either distribute all its income, or accumulate its income and feed the accumulated (deemed distributed) figures to the platform.

However if you choose to invest in a non UK fund or ETF that doesn't distribute the ownership units through a 'fund platform' to retail customers, but instead just allows prospective investors to simply show up to the stock exchange and buy units on the open market, you don't have that deep integrated relationship where they feed information to you through your platform.

To allow broad ownership the fund manager of such a non UK fund or ETF will meet the HMRC offshore reporting fund regulations by publishing the information about income that hasn't been distributed, but he will do that on his own website through whichever method he sees fit. Your broker / platform may not receive the info in a structured format that integrates well with his systems, and as the un-distributed income does not belong to your broker and is not received by your broker, you will find your broker is not very interested in performing detailed calculations for you in that regard.

Try to figure it out in the event investor bought/sold units in multiple ETFs over a year and fund reporting period does not match with tax return period. One need a proper database to link transactions with the ERI periods. Have you tried doing it ?

You may find that a fund which is ostensibly cheap but requires you to jump through hoops to obtain and process the data for your own tax administration requirements, is not necessarily the 'bargain' it seemed at first glance; it may be better for you to select underlying investments for your portfolios which are more administratively convenient.

No to mention that ERI is only available in pdf and one have to search the pdf, copy the numbers across in Excel and create some calculation rules..

The most convenient way would be for them to send it out in a format such as XML or other machine-readable code which could be picked up and processed by a specialist database. However, that would require all funds, managers and industry participants- including investors who might buy direct - to agree a data structure/ schema and then build or buy that specialist database to receive the information.

It's generally easier for them to distribute a pdf in their preferred layout which can be viewed by a computer, tablet or smartphone across all types of operating system, and then I as an investor can download the pdf from that manager, look at the row for the fund in which I'm interested, and read the ERI. Then I can write it down on a bit of paper or put it in a calculator or paste it into a spreadsheet, depending on how sophisticated my investing life is.

The halfway house between a PDF and a database might be a spreadsheet, but firms publishing reports often prefer to distribute a definitive version of basic read-only documents such as PDFs, rather than excel, ods, csv sheets etc.


The link you gave from Fidelity seemed quite reasonable in what they suggest as the practical steps you can take for investments which have not given them the information to put into the tax voucher:

Offshore income
Your taxvoucher does not show any accumulated income covered bythe reporting rulesfor UK offshore funds.

If you have any offshore funds with us,you have the following options for obtaining this information:

•Contact the fund provider directly.

•KPMG provide information for all the reporting funds available on our platform. This is a free service which you can register for at kpmgreportingfunds.co.uk

•For details of Fidelity’s own offshore funds you can also go to fidelity.co.uk/reportingfunds

It's not like they are being difficult or unhelpful there.

At the end of the day, it's your choice what investments you want to hold. You can put trickier funds in tax wrappers or avoid them. If you have so much money that you have run out of space in tax wrappers and absolutely must use these funds because you already have enough of the hundreds of other funds available, the situation qualifies as 'nice problem to have' ; you could afford to buy tax advice if you don't feel you're competent enough to do the calculations, or if you find your time too valuable to spend on this task.

masonic

tellme_why wrote: »

it's not that easy to calculate either, in particular when the fund applies equalisation and one has to account for the reporting fund period, distribution period, no matching the tax year for multiple ETFs.

Equalisation applies to fund units in OEICs/UTs, not shares in ETFs, so this is a complication you shouldn't encounter as few people invest in offshore open ended funds.

tellme_why wrote: »

Many Thanks Masonic
"The calculations aren't complicated. You look up the published rate per unit and multiply by the number of units you held on the notional distribution date" - I am not sure this is the case. The complication is that ERI does not arise at time of distribution but on the last day of the fund reporting period apparently which can be six month prior the distribution.

The notional distribution date for the ERI is not the same as the dividend distribution date, but should be detailed in the same document as the rate.

tellme_why

bowlhead99 wrote: »

Primarily because it's easier for them not to, and their customers and prospective customers are often focused on getting lower fees rather than value added services, and the customer is always right.

So they listen to 'the customer' [where the customer is collectively 'you plus tens of thousands of other clients'] and they hear that on average, the customer wants to keep the fees down as a priority. The result is that they provide the lower fee service without the value-add. The tax analysis is something which you might personally prefer to have had bundled into the service, but which other customers might not want to have bundled into the service that they receive and pay for.

If you ask a stockbroker to provide you a nominee service and dealing service to buy some exchange-traded investments on the stock exchange, they'll do just that, and tell you what (if any) dividends were received on your behalf in the period of ownership. However, what you are looking for is what income was made by the fund and *not* received by the broker in your period of ownership because the fund choose not to distribute it.

It's *you* that wants the information about what profits were made in the offshore fund and not distributed to the broker for you. The broker doesn't need that info because your personal tax return is not his responsibility. He needs the info about money he receives on your behalf, because he must look after the money and communicate the info to you. But he doesn't need that info about ERI, because that's quite specifically all about money that was never given to him to look after for you.

You generally find that when you are investing in UK OEICs and unit trusts, investment platforms who act as intermediary/ distributor in the chain of ownership will give you the info about both your distributed and accumulated undistributed income in a consolidated tax certificate. That's straightforward because a UK OEIC is required by regulation to either distribute all its income, or accumulate its income and feed the accumulated (deemed distributed) figures to the platform.

However if you choose to invest in a non UK fund or ETF that doesn't distribute the ownership units through a 'fund platform' to retail customers, but instead just allows prospective investors to simply show up to the stock exchange and buy units on the open market, you don't have that deep integrated relationship where they feed information to you through your platform.

To allow broad ownership the fund manager of such a non UK fund or ETF will meet the HMRC offshore reporting fund regulations by publishing the information about income that hasn't been distributed, but he will do that on his own website through whichever method he sees fit. Your broker / platform may not receive the info in a structured format that integrates well with his systems, and as the un-distributed income does not belong to your broker and is not received by your broker, you will find your broker is not very interested in performing detailed calculations for you in that regard.

You may find that a fund which is ostensibly cheap but requires you to jump through hoops to obtain and process the data for your own tax administration requirements, is not necessarily the 'bargain' it seemed at first glance; it may be better for you to select underlying investments for your portfolios which are more administratively convenient.


The most convenient way would be for them to send it out in a format such as XML or other machine-readable code which could be picked up and processed by a specialist database. However, that would require all funds, managers and industry participants- including investors who might buy direct - to agree a data structure/ schema and then build or buy that specialist database to receive the information.

It's generally easier for them to distribute a pdf in their preferred layout which can be viewed by a computer, tablet or smartphone across all types of operating system, and then I as an investor can download the pdf from that manager, look at the row for the fund in which I'm interested, and read the ERI. Then I can write it down on a bit of paper or put it in a calculator or paste it into a spreadsheet, depending on how sophisticated my investing life is.

The halfway house between a PDF and a database might be a spreadsheet, but firms publishing reports often prefer to distribute a definitive version of basic read-only documents such as PDFs, rather than excel, ods, csv sheets etc.


The link you gave from Fidelity seemed quite reasonable in what they suggest as the practical steps you can take for investments which have not given them the information to put into the tax voucher:

It's not like they are being difficult or unhelpful there.

At the end of the day, it's your choice what investments you want to hold. You can put trickier funds in tax wrappers or avoid them. If you have so much money that you have run out of space in tax wrappers and absolutely must use these funds because you already have enough of the hundreds of other funds available, the situation qualifies as 'nice problem to have' ; you could afford to buy tax advice if you don't feel you're competent enough to do the calculations, or if you find your time too valuable to spend on this task.

Thanks Bow, It's not a nice problem to have I am afraid; assume one been accumulating abroad her lifesaving then back to uk can only put £20k/year in Isa and cannot put in SIPP. So it's not nice at all.

bowlhead99

tellme_why wrote: »

Thanks Bow, It's not a nice problem to have I am afraid; assume one been accumulating abroad her lifesaving then back to uk can only put £20k/year in Isa and cannot put in SIPP. So it's not nice at all.

Having a lot of assets that you can't wrap up from the taxman is at least better than not having a lot of assets, that was why we refer to it as 'nice problem to have'

I take the point that it would be frustrating to have a million of assets after a life of savings and only be able to put £20k in the ISA. However, you do not need to use 'offshore' funds if the paperwork is a headache for you. For example you mentioned a FTSE100 tracking ETF from Vanguard. But they also do a FTSE 100 unit trust at OCF of 0.06% and a FTSE All-Share unit trust at OCF of 0.08%, both are UK domiciled funds, so there is no real need to pick their FTSE100 ETF in Ireland at 0.09% OCF.

As we know UK funds are better from a tax paperwork point of view, we presume you are only using non-UK-domiciled funds because you have already put as much as is feasible into UK domiciled OEICs and UTs, so the implication is that you already have several tens of millions.

Perhaps that is not really the case and there is another reason you are using offshore funds (e.g. not being UK domiciled or deemed domiciled); but in those cases of having substantial offshore wealth there may be some money available to pay an accountant if you find it a big admin problem.