HMRC nudge letter over Isle of Man offshore bond – discrepancy between declared gain and “balance”

oven_edie

Hello!

I’d like some help understanding a mismatch between what I reported to HMRC and information HMRC says they’ve received regarding an offshore bond. Recently, I received a “nudge letter” from HMRC, and I have not yet formally responded to it (other than to confirm details and request an extension). Any insights or similar experiences would be hugely appreciated.

Here’s the situation:

Context

I was a beneficiary under a discretionary trust that held an offshore investment bond, administered by an Isle of Man provider. I only had a subset of segments assigned to me (out of a larger number of identical segments), and I fully surrendered these segments some time ago.

Self Assessment

I reported the resulting chargeable event gain on my UK tax return in the Foreign (SA106) supplementary pages. Specifically:

* Box 43 (“Gains of foreign life insurance policies, capital redemption policies, and life annuity contracts etc.”): I entered the arising gain figure from the chargeable event certificate.

* Box 44 (“Number of years”): I entered the ‘contract years’ figure from the certificate.

This matches the chargeable event certificate I received from the provider.

The Issue

After submitting my return, I received a nudge letter from HMRC stating they have information suggesting I may have under-reported. However, the letter itself does not specify the figure they hold—when I called HMRC, they said they have a figure they described as my “balance.” This figure doesn’t match either the gain I declared or the full policy value.

The Isle of Man provider confirms my surrendered segments and the chargeable event details are correct, but they cannot provide the exact details they submitted to the Isle of Man tax authorities (that’s internal). They also don’t see how HMRC's figure fits with any partial-year figure, gain for all policy segments, or the policy’s total balance.

Current Understanding

As I understand, the Isle of Man shares financial data with HMRC either under the Crown Dependencies AEOI agreement and/or the OECD’s Common Reporting Standard (CRS). My best guess is that HMRC’s figure originates from a partial snapshot or some reporting quirk in that data flow—perhaps showing a year-end value, a partial sum of bond segments, or another timing difference. Neither the provider nor HMRC can pinpoint exactly how it was derived, leaving me at a standstill. However, I’m confident I declared the correct taxable amount based on my chargeable event certificate.

Next Steps

I’m planning to respond to HMRC’s nudge letter with a letter of my own, rather than completing and signing the “certificate of tax position” form they included. From what I’ve read, responding by letter is an acceptable approach—especially if there’s a need to explain complexities.

Questions

1. Has anyone encountered a similar situation where the “balance” reported didn’t match either the actual surrender amount or the total bond value?

2. Could there be another explanation—like a timing difference, partial-year valuation, or some other reporting quirk—that produces a seemingly random figure?

3. I’m aware of the advice suggesting it’s often better to respond with a letter (rather than signing the certificate) if the position is complex. Does anyone have experience with HMRC accepting that approach without issue?

4. Finally, is there any formal channel to obtain the precise details the Isle of Man tax authority forwarded to HMRC, to rule out a data or clerical error?

Thanks in advance, any insights would be appreciated!

dunstonh

Lots of these nudge letters going out.

1. Has anyone encountered a similar situation where the “balance” reported didn’t match either the actual surrender amount or the total bond value?

No.

2. Could there be another explanation—like a timing difference, partial-year valuation, or some other reporting quirk—that produces a seemingly random figure?

Guessing reasons isn't likely to achieve anything.  It could really be anything.

3. I’m aware of the advice suggesting it’s often better to respond with a letter (rather than signing the certificate) if the position is complex. Does anyone have experience with HMRC accepting that approach without issue?

I am aware of one recent nudge letter and that had a written reply and was accepted and resolved without further tax within a week.

4. Finally, is there any formal channel to obtain the precise details the Isle of Man tax authority forwarded to HMRC, to rule out a data or clerical error?

I wouldn't worry about it too much as you have the chargeable gain certificate that supports what you declared.  
I would also give the details of the transactions that led to that chargeable gain.   That should match the chargeable gain certificate.   

poseidon1

oven_edie said:

Hello!

I’d like some help understanding a mismatch between what I reported to HMRC and information HMRC says they’ve received regarding an offshore bond. Recently, I received a “nudge letter” from HMRC, and I have not yet formally responded to it (other than to confirm details and request an extension). Any insights or similar experiences would be hugely appreciated.

Here’s the situation:

Context

I was a beneficiary under a discretionary trust that held an offshore investment bond, administered by an Isle of Man provider. I only had a subset of segments assigned to me (out of a larger number of identical segments), and I fully surrendered these segments some time ago.

Self Assessment

I reported the resulting chargeable event gain on my UK tax return in the Foreign (SA106) supplementary pages. Specifically:

* Box 43 (“Gains of foreign life insurance policies, capital redemption policies, and life annuity contracts etc.”): I entered the arising gain figure from the chargeable event certificate.

* Box 44 (“Number of years”): I entered the ‘contract years’ figure from the certificate.

This matches the chargeable event certificate I received from the provider.

The Issue

After submitting my return, I received a nudge letter from HMRC stating they have information suggesting I may have under-reported. However, the letter itself does not specify the figure they hold—when I called HMRC, they said they have a figure they described as my “balance.” This figure doesn’t match either the gain I declared or the full policy value.

The Isle of Man provider confirms my surrendered segments and the chargeable event details are correct, but they cannot provide the exact details they submitted to the Isle of Man tax authorities (that’s internal). They also don’t see how HMRC's figure fits with any partial-year figure, gain for all policy segments, or the policy’s total balance.

Current Understanding

As I understand, the Isle of Man shares financial data with HMRC either under the Crown Dependencies AEOI agreement and/or the OECD’s Common Reporting Standard (CRS). My best guess is that HMRC’s figure originates from a partial snapshot or some reporting quirk in that data flow—perhaps showing a year-end value, a partial sum of bond segments, or another timing difference. Neither the provider nor HMRC can pinpoint exactly how it was derived, leaving me at a standstill. However, I’m confident I declared the correct taxable amount based on my chargeable event certificate.

Next Steps

I’m planning to respond to HMRC’s nudge letter with a letter of my own, rather than completing and signing the “certificate of tax position” form they included. From what I’ve read, responding by letter is an acceptable approach—especially if there’s a need to explain complexities.

Questions

1. Has anyone encountered a similar situation where the “balance” reported didn’t match either the actual surrender amount or the total bond value?

2. Could there be another explanation—like a timing difference, partial-year valuation, or some other reporting quirk—that produces a seemingly random figure?

3. I’m aware of the advice suggesting it’s often better to respond with a letter (rather than signing the certificate) if the position is complex. Does anyone have experience with HMRC accepting that approach without issue?

4. Finally, is there any formal channel to obtain the precise details the Isle of Man tax authority forwarded to HMRC, to rule out a data or clerical error?

Thanks in advance, any insights would be appreciated!

As long as the discretionary trust that held the offshore bond was a UK entity ( ie settlor and trustees were UK tax resident ) then supplying HMRC with a copy of the chargeable event certificate you relied on  should suffice for them to at least see the basis for your declaration.
I would do so by letter in the first instance , which is what a tax accountant would do on behalf of a client in the same circumstance.

However, if the trust was not UK tax resident ( ie offshore trust) , then tax implications are not merely limited to your encashment of the bond and  can potentially be quite horrendous for the UK receiving beneficiary depending on past investment activities of the trust.

masonic

dunstonh said:

Lots of these nudge letters going out.

Yes, and I am surprised that they are so consistently described as "nudge letters". Is that what HMRC write on the envelope?

Dazed_and_C0nfused

masonic said:

dunstonh said:

Lots of these nudge letters going out.

Yes, and I am surprised that they are so consistently described as "nudge letters". Is that what HMRC write on the envelope?

Don't know about the envelope but they seem to be aware of the phrase,

https://community.hmrc.gov.uk/customerforums/pt/d557d6d6-88b2-ef11-95f6-6045bd0d1542