Providers are confirming the tax status of their UK ETF ranges, following scrutiny in the media over whether investors incur income tax or capital gains tax rates.
Tax partners say offshore funds, including ETFs, that have not taken on distributor or reporting fund status can incur income tax of up to 50%, rather than capital gains tax (CGT) at 18% or 28%.
Distributor and reporting fund status exempt offshore funds from incurring income tax, although the distributor regime is currently being replaced by the reporting fund status regime.
The new reporting regime came into effect on December 1, 2009, with a transitional period for existing funds, which reaches into 2012.
The reporting regime provides the same benefits to UK investors as the distributor regime, while allowing more funds to gain UK tax status. Accumulation funds, for example, which could not qualify for distributor status, can now receive reporting status in the UK, offering investors a broader range of funds under CGT.
iShares head of product tax Roger Exwood says: "Once all transitional procedures are completed, all UK listed iShares funds except one - the iShares Private Equity fund - are expected to have UK reporting status, with an effective date of July 10, 2010 or earlier."
He adds: "In relation to that one fund, we will then look to make it even more prominent that the fund does not have UK reporting status."
He says 94% of current iShares Dublin assets under management (AUM) are covered in terms of UK distributor status, while 99.8% of funds in terms of AUM will be covered by UK reporting status.
Lyxor says all its ETFs listed on the London Stock Exchange available to UK investors have either received the UK distributor status, or are eligible and will apply for distributor status for their previous accounting periods.
Head of Lyxor ETFs UK, Nordics and Latin America Claus Hein says as the UK distributor status is being replaced by the reporting fund regime, all of the firm's UK-listed ETFs will transition to the new system and will remain eligible for the distributor status throughout the transition period.
He adds: "This is an important consideration for UK investors evaluating ETFs and we continue to ensure that all Lyxor ETFs which are listed on the LSE are eligible for the current UKDS and will apply for the new UKRF."
Deutsche Bank says all the db x-trackers ETFs for UK investors are managed "such that they will be compliant" with either the distributor status or reporting requirements to the HMRC.
ETF Securities (ETFS) says it has applied for and achieved distributor or reporting status for all its products listed before June 2010.
The firm says for products listed after this date, it has either applied for reporting fund status, or will submit within three months of the fund's initial listing, in which case the status is "fully expected" to be received from HMRC.
ETFS adds for all products to be listed in the future, it will apply for reporting fund status within a three-month timeframe.
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