HM Revenue & Customs has ruled all rebates from asset managers to investors will be subject to income tax from April.
Money Marketing reported in December that HMRC was looking at the tax treatment of rebates, causing delays to the FSA’s forthcoming platform paper. There was an expectation within the industry that these payments would be taxed.
HMRC has confirmed this morning that cash and unit rebates paid from 6 April 2013 will be taxed, although the decision will not be retrospective.
In a briefing note published today, HMRC says: “This brief – in the main – concerns the tax treatment of payments made to investors in a Collective Investment Scheme, insurance policy or other investment product, by fund managers, fund platforms, advisers, or any other person acting as an intermediary between the fund and the investor.
“In particular, it concerns cases where all or part of any trail commission paid by the fund manager to other intermediaries is then paid to (or used to meet the liabilities of, or provide a benefit to) the investor. This typically happens as a result of an agreement between the investor and the fund platform, although it could be as a result of an agreement between the investor and their adviser or the fund manager.
“Such payments typically originate from the annual management charge paid by the Collective Investment Scheme to the fund manager.
“HMRC understands through its discussions with industry that industry have generally considered such payments to not be taxable in the hands of the investor. HMRC however considers that these payments are taxable and this brief sets out HMRC’s views on how payments from trail commission should be taxed.”
HMRC says it acknowledges the logistic challenges of introducing the new regime from April 2013 and will accept an approximation of the tax deducted at source up to the end of 2013 “providing that this is as accurate as reasonably possible”.
The note states that payments through Isas will not be taxable or count towards the annual Isa allowance. Sipp payments made to the Sipp and reinvested will not count as new member contributions. If payments are made to the member they will be treated as annual payments and the payers will be required to deduct tax at source.
The briefing note also highlights that the FSA may make some more changes to its rebate rules.
A HMRC spokesman says: “Tax will be due from April onwards on all commission paid by investment funds to investors. We will not collect tax on earlier years commission.
“Until the end of 2013 to allow the rules to bed in we will accept an estimate of tax deducted at source. We will work very closely with stakeholders to ensure the rules are applied fairly across the board.”