The Government has moved to exempt offshore investors from paying tax on platform rebates.
Since 6 April, all platform rebates to investors have been taxable following an HMRC ruling in March.
But in a written ministerial statement last week, Treasury economic secretary Sajid Javid said taxing offshore investors could affect the UK’s competitiveness.
The Government has immediately reversed the tax charge for offshore investors and launched a four-week consultation to set out detailed new rules.
Javid said offshore investors do not normally pay tax on interest or equity positions and rebates are similar to distribution payments.
He said: “This difference could have a profoundly negative impact on the international competitiveness on the UK funds industry.
“Imposing a requirement to withhold tax would therefore be at odds with the Government’s investment management strategy, published at Budget 2013.”
The Lang Cat principal Mark Polson says: “Offshore funds that are repatriated are not subject to UK income tax so it seems fair to exempt them as long as the full rebate goes back into the same bond.
“For example, if there is an offshore bond on the Isle of Man as long as the full rebate is paid into the account on the Isle of Man then it should not be taxable as it is part of the growth of the bond.
“But taxing rebates generally is so undesirable that the Government is now walking into some issues around it.”
Murphy Financial associate partner Adrian Murphy says: “If you are not going to tax rebates for offshore investors then why do it for everyone else? It was poor decision in the first place and it is a bit odd now to change a tax decision based on competitiveness.”