This week’s Money Marketing reveals that in an industry bulletin, HMRC says some kick-out plans use securities with an early redemption feature which means they are not a qualifying investment for inclusion in a stocks and shares Isa. HMRC says a condition for qualifying securities is that “at the date on which the security is purchased by the Isa manager, the terms on which it was issued do not require the loan to be repaid or the security to be re-purchased or redeemed within the period of five years from the date”.
Firms are grappling with a HMRC caveat in the bulletin “in circumstances which are neither certain nor likely to occur”.
HMRC says it has found some securities in Isas which do not satisfy its conditions and is calling on Isa managers to check if their products breach the rules.
It would not reveal what will happen to the tax status of any investments which have been wrongly offered as Isas. Last year, HMRC confirmed that some of Keydata’s products promoted as Isa-eligible did not meet the requirements for Isa investments. Investors did not lose their Isa allowance but because the investments were not Isa-qualifying securities, were liable for tax.
Last month, Legal & General launched a kick-out product in partnership with HSBC. L&G says it is assessing the impact of HMRC’s warning.
Barclays has checked the terms of its securities and says they do not contain an early redemption clause triggered by a kick-out and therefore it believes they are unaffected.
Blue Sky Asset Management chief executive Chris Taylor says: “We will review our products but different securities’ issuance programmes use different wording, which may have some bearing on this. HMRC’s blanket reference to all autocalls in this bulletin, is, based on our understanding, incorrect.”
Meteor Asset Management says it is reviewing its plans but Morgan Stanley refused to comment on the issue.