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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 last week, the regulator said HMRC’s 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: “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.

Pilot Financial Planning director Ian Thomas says: ”Even though a lot of assets are held within tax efficient wrappers, platforms will not want to run two systems for wrapped and unwrapped investments so the move to clean share classes is inevitable.”


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