HM Revenue & Customs has admitted that more clarity is needed around the tax implications of adviser charging under the RDR.
HMRC has written to the financial services industry following last week’s Budget.
The letter reveals that a working group, made up officials from the Treasury, HMRC, the FSA and industry bodies, has been working to resolve the tax implications of adviser charging around issues such as VAT and the tax applicable to bonds.
HMRC’s letter says: “Following work to date we have identified some areas where further clarity would be helpful for the industry in preparing for the transition [to the RDR]. We are exploring the options around updating HMRC’s technical guidance.
“The areas under consideration include updates to the HMRC VAT guidance and registered pension schemes manual; technical advice on capital gains tax – acquisition costs and adviser fees; and products written in trust.”
Personal Finance Society chief executive Fay Goddard says: “It is positive that this issue was important enough to be acknowledged in the Budget.”
She says there needs to be guidance around VAT charging, but also what happens where clients opt to pay adviser charges through the product.
Goddard gives the example of clients choosing to pay for advice through an life insurance bond. In this case the 5 per cent income usually paid to the client would have to be reduced as a result of adviser charging deductions.
In the case of unit trusts, where units have to be encashed to pay for the adviser charge, this could in turn generate a taxable event.
She adds: “People who are creating business models now will need to be aware of some of these quite fundamental issues when they are planning how they are going to adopt adviser charging.
“My real concern is that unless these things are sorted out quite quickly, we could have a situation where people are running with a business model through next year and come January 1, 2013 they have got to adopt a different methodology.”