Aifa has called for HM Revenue & Customs to provide more clarity on the tax implications of adviser-charging by December after the Government admitted its guidance needs updating.
In a letter to the financial services industry, dated March 23, HMRC said: “Following work to date, we have identified some areas where further clarity would be helpful for the industry in preparing for the trans- ition to the RDR.
“We are exploring the options around updating HMRC’s technical guidance.”
Areas that may be updated include VAT guidance, technical advice on capital gains tax, including acquisition costs and adviser fees, and products written in trust.
Last August, HMRC and the Association of British Insurers published guidance which reiterated that VAT is payable on advice but not product sales.
However, more complex tax implications arise where clients opt to pay the advice fee out of the product.
Personal Finance Society chief executive Fay Goddard points out that life insurance bonds pay 5 per cent income but this would be reduced as a result of adviser charging deductions.
Taxable events may also be generated in unit trusts where units have to be encashed.
She says: “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.”
Aifa director Robert Sinclair says: “We hope we will have the guidance before the end of this year, never mind before the RDR deadline. There are a lot of tax rules around products that could be impacted by the move to adviser charging. Advi- sers need to know the rules in plenty of time so that firms can get this embedded and be aware of what the impact will be.”