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FCA: Rebate tax risks poor consumer outcomes

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The Financial Conduct Authority says HM Revenue & Customs’ implementation of a tax on rebates could result in poor outcomes for consumers in bundled share classes.

In its platform policy statement published today, the regulator said the HMRC ruling is likely to mean a drive towards clean share classes.

HMRC confirmed last month platform rebates would be subject to tax from 6 April.

The FCA says it is likely to be more efficient to strip any rebate out of a fund management charge.

It says: “Transparent pricing would benefit consumers and also avoid the potential for consumers facing any undesirable tax consequences. It reinforces the position that fund prices remaining at levels typically with an annual management charge of 1.5 per cent, which allow for a proportion to be rebated to the consumer, could give a potentially poor outcome for consumers from a tax perspective.

“Given the tax treatment of rebates as clarified by HMRC, it may be more efficient for fund prices to strip out most or all of the rebate built into fund prices.”

In the policy statement the regulator also says it does not expect clean fund prices to be more expensive than the bundled equivalent.

It says: “We do not expect these policy changes to be used as a reason by the industry to increase the fees they are able to receive.

”If we see the average total expense ratio across the industry increase as a result of these changes and the movement to clean share classes, this will add weight to the concerns we have around pricing and competition in this market.”


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There is one comment at the moment, we would love to hear your opinion too.

  1. ScepticalOptimist 26th April 2013 at 9:43 am

    Is this a regulator sanctioned business opportunity?

    Obviously there will be advisory fees to be charged for reviewing the continued suitability of previously undisturbed investments for clients; but it sounds like our new regulator is giving us reasons why now!

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