Excess Reportable Income (ERI) explained

What is excess reportable income (ERI)?

Investment funds based in the UK are generally required to distribute income that they earn, however funds based outside the UK are not subject to this requirement. Instead, reporting funds based outside of the UK, including offshore based exchange-traded funds, may retain some income within the fund this is known as ERI.

Who does excess reportable income affect?

Excess reportable income is relevant to UK tax residents who invest in offshore reporting funds outside an ISA or SIPP. Investors are liable to income tax on the total reported income of the fund i.e. both the income distributed and any ERI. The ERI is deemed to be distributed to investors six months after the end of the funds reporting period i.e. this is the date that income is treated as earned for UK tax purposes.

How does excess reportable income affect capital gains?

For UK tax resident investors, any gain arising from the disposal of an investment in a reporting fund is subject to capital gains tax. The excess reportable income amounts that have been subject to income tax should generally be added to the base cost of the investment, thereby reducing the gain subject to capital gains tax.

For investors in offshore funds that are not reporting funds, the gains arising from disposals are taxed at income tax rates rather than capital gains rates.

If you hold offshore funds or ETFs, we recommend that you discuss your individual circumstances with your professional tax advisor.