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I have investments in ETFs that invested in equities /

equity indexes. The ETFs are...
I have investments in ETFs that invested in equities / equity indexes. The ETFs are based in USA and some based in Canada, through an investment platform / stock broker company. The ETFs pay dividends on which withholding tax is deducted ,15% on the USA based funds and 25% on the Canada based funds. I have capital gains (sales proceeds Less acquisition costs) on these funds. These funds are not on the HMRC list of Offshore Funds with Reporting status.
How are the capital gains on these funds taxed for a UK tax resident? As foreign income or as capital gains?
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Answered in 10 hours by:
3/17/2018
bigduckontax
bigduckontax, Accountant
Category: UK Tax
Satisfied Customers: 5,327
Experience: FCCA FCMA CGMA ACIS
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Hello, I am one of the experts on Just Answer and pleased to be able to help you with your question.

These are capital gains for UK tax purposes and you have a non cumuylative Annual Exempt Amount (AEA) of 11.3K to offset them.

I do hope that you have found my reply of assistance.

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TaxVince
TaxVince, Accountant
Category: UK Tax
Satisfied Customers: 972
Experience: Chartered Accountant >20 years + Qualified IFA
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Dear customer

I'm TaxVince and I wish to assist you in your question.

I do not agree with the previous advisor. My advice is that since your ETFs do not have either ‘reporting’ or‘distributor’ status, it means all the gains/losses are charged as income tax(instead of capital gains) – this is the case with most foreign ETFs. The disadvantageis that the gain can be taxed at a rate as high as 45% if you are an additionalhigh rate payer.

You can reclaim withholding tax levied on ETFs and thesewill be taken off as foreign tax credits in your UK tax return. Just completethe box on your tax return with the correct figure. It will be in the samesection where you declare your foreign dividend income.

Make sure you have the documentation on the foreignwithholding taxes held.

Hope this helps

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Customer reply replied 5 months ago
Dear Tax Vince,
Thank you for your answer. Please clarify the following for me:
1) You mention 'distributor' status. I saw the HMRC list of offshore funds with 'reporting' status. Does HMRC also have a list on their website for 'distributing' status funds? I saw on the websites of the USA based ETFs i use that they give details of their distributions for USA tax purposes; some of them distribute all their income. Does this make them Distributing funds?
2) For the gains / losses on the Non reporting and Non distributing funds which are to be charged as Income: In a tax year, can i deduct the losses from the gains and show the net gains as income? Sometimes, i have gains and losses for the same ETF during the tax year.
3) The only documentation i have for the withholding tax deducted from the dividends, is the statement i receive from the broker platform i use which it shows the gross dividend and withholding tax deducted, the base currency and country.

Thanks your reply. Apologies I onlysaw your reply a few minutes ago.

Please see below my answers toyour questions:

1 You mention 'distributor' status. I saw the HMRClist of offshore funds with 'reporting' status. Does HMRC also have a list ontheir website for 'distributing' status funds? I saw on the websites of the USAbased ETFs i use that they give details of their distributions for USA taxpurposes; some of them distribute all their income. Does this make themDistributing funds?

‘REPORTING’ IS JUST A NEWER,UPDATED CLASSIFICATION, COMPARED TO THE OLDER ‘DISTRIBUTOR’ CLASSIFICATION. SOFOR THE SAKE OF YOUR QUESTION CONSIDER THIS TO BE THE SAME.

2) For the gains / losses on the Non-reportingand Non distributing funds which are to be charged as Income: In a tax year,can i deduct the losses from the gains and show the net gains as income?Sometimes, i have gains and losses for the same ETF during the tax year.

YES YOU TAKE THE NET GAIN/LOSS DURING THE TAX YEAR. THIS IS TAXED UNDERINCOME TAX REGIME INSTEAD OF CAPITALGAINS TAX.

3) The only documentation i havefor the withholding tax deducted from the dividends, is the statement i receivefrom the broker platform i use which it shows the gross dividend andwithholding tax deducted, the base currency and country.

YES THAT SHOULD DO. YOU NEED TO WORK OUT THE TAX CREDIT WHICH IS THELESSER OF THE UK TAX OR FOREIGN TAX AND YOU CLAIM THAT AMOUNT. IF THE NUMBERSARE QUITE BIG YOU MAY NEED THE HELP OF AN ACCOUNTANT. FURTHER HELP ONCOMPLETING THE FOREIGN INCOME /FOREIGN TAX CREDIT ARE HERE: http://www.gov.uk/government/publications/calculating-foreign-tax-credit-relief-on-income-hs263-self-assessment-helpsheet/hs263-calculating-foreign-tax-credit-relief-on-income-2015

TaxVince
TaxVince, Accountant
Category: UK Tax
Satisfied Customers: 972
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Customer reply replied 5 months ago
Tax Vince, I rated your answer 5* two days ago
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