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Firms check kick-out plans after tax alert

Structured product providers are reviewing kick-out plans after a HM Revenue & Customs’ warning that some plans may have been wrongly promoted as Isa-eligible.

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.


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Michael Pearman 8th April 2010 at 10:18 am

    Have the revenue nothing better to do ? The revenue say that we should all obey the spirit of tax law not the letter of the law .. Be nice if they did the same . And they wonder why we don’t like them !

  2. anyone know whether Investec are affected by this ?

  3. Does anyone know whether Walker Cripps are affected by this ?

  4. Kick-Out Structures and ISAs

    Returning from a week’s holiday my blackberry voicemail had the usual 30 plus voicemails however, unlike on previous occasions where I’ve been able to reply with a specific answer to the majority of questions, I have been unable to provide any clarity around the single question asked by most advisers (and journalists!); are Investec’s Kick-Out Plans still ISAable?

    On the 30th March HMRC issued Bulletin 19 – ISA Guidance Update which made reference to Qualifying Securities held inside stocks and shares ISAs. The bulletin inferred that Structured Investment Plans (note not Structured Deposits) that had a Kick-Out feature held within an ISA, meaning that the Plan could mature early and within the 5 year term, may not be deemed as qualifying for ISA status. There has since been a huge amount of “noise” around this issue which is sadly endemic of the industry that we work in. Investec are currently in discussion with HMRC and will confirm the outcome as soon as we receive clarification, so it would not be appropriate to comment with any certainty one way or the other. Having said that, I can confirm that HMRC have previously reviewed the “Investec version” of our Enhanced Kick-Out Plan and agreed it qualifies for stocks and shares ISAs. We are currently reviewing the position with regard to our Morgan Stanley and RBS versions but again, we do not foresee any issues affecting these Plans at this stage.

    The ISA update only relates to Structured Investment Plans and not Structured Deposits, as the 5 year rule does not apply to cash deposit products.

    It is always possible of course that HMRC can change their stance, however I believe that any changes will not be applied retrospectively to us. I am also still not clear on the exact motivation behind HMRC’s bulletin but we are in discussion to understand their position going forward. As a principle, Investec Structured Products has always adhered to the substance of HMRC guidance and our Plans have deliberately not been aggressively structured from a tax perspective so as not to run the risk of having to possibly unwind a particular structure in the future or worse still, foot an unwelcome tax bill.

    As a result of our current position and ongoing discussions with HMRC we have not, at this stage, withdrawn the ISA version of our current Enhanced Kick-Out Plan, but we are keeping this under review pending further clarification. Advisers should of course draw their own conclusions however lets not make any knee-jerk reactions until we know the full facts and repercussions (if any).

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