Hargreaves Lansdown will be able to return “loyalty bonuses” to investors tax-free after winning a legal battle with HM Revenue and Customs.
The fund shop says at least £15m will collectively be returned to around 150,000 investors.
HMRC has 56 days to appeal the decision of the Upper Tax Tribunal that loyalty bonuses are not taxable.
Rebates of annual management charges to clients when discounting investments, also known as loyalty bonuses, were deemed taxable by HMRC from April 2013.
From that point rebates of annual charges, such as loyalty bonuses, paid on funds held outside Isa or Sipps had to be taxed as income and paid net of the basic rate tax.
Hargreaves launched a legal challenge against the change in September of that year.
Hargreaves says if HMRC does not appeal then it will work with the department to return the amounts withheld on payments of loyalty bonus to investors. It says it will also stop deducting the 20 per cent provision from future loyalty bonuses.
However, if HMRC does launch an appeal then Hargreaves says it will wait until that has concluded before taking any action. It says it will continue to deduct a 20 per cent provision from loyalty bonuses.
Hargreaves Lansdown chief executive Chris Hill says: “We saw the ‘discount tax’ that HMRC introduced in 2013 as unwarranted attack on private investors, so we launched a legal challenge, and I am delighted that the tax tribunal has supported our view.”
Hill says: “The ruling will not only see money returned to investors, but will also simplify their tax affairs, as there will be no need to declare the loyalty bonus on their tax returns. Furthermore, it is likely to benefit clients of all investment services providers who offer rebates on annual fund charges, not just clients of Hargreaves.”