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Clients face higher costs from DFM tax

Discretionary fund managers have warned the European Court of Justice’s recommendation that all elements of DFM services should be subject to VAT is likely to push up costs for investors.

An opinion statement from advocate general Eleanor Sharpston, published this week, says DFM services, including dealing fees and commission, should be subject to VAT.

The judgment could see HM Revenue & Customs rethink its VAT treatment of discretionary fund management services. Under the VAT Act 1994, discretionary services are subject to VAT but dealing fees and commission are exempt.

Last year, a German court questioned Deutsche Bank’s VAT treatment of its discretionary services and referred the case to the ECJ for guidance, which was heard on March 1.

The opinion statement will now be referred back to the original German court for a decision and a final decision from the ECJ. In most cases, courts will follow the guidance set out by the advocate general. An HMRC spokesman says it would be inappropriate to comment ahead of the final judgment.

Atkinson Bolton Consulting director Simon Gibson says: “This is a disappointing outcome for DFMs and investors. Discretionary management services in the UK will either become more expensive or the DFM will swallow a 20 per cent VAT charge, which is unlikely.”

Bestinvest senior investment adviser Adrian Lowcock agrees it will raise the end-cost for investors. He adds: “Charging VAT on trades could also deter discretionary managers from making portfolio changes.”

Investment Quorum chief executive Lee Robertson says: “The lunacy of this is portfolios could be left unchanged to consumers’ detriment as a result of the whole process being VAT-able.”



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  1. Shouldn’t there now be calls to apply a similar tax to unit trust and OEIC fund manager charges to ensure consistency across the industry?

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