Discretionary fund managers are failing to cut fees as a result of a European VAT exemption on their model portfolio services.
A note sent to advisers by support firm threesixty and seen by Money Marketing, explains how the exemption applies to these services if they meets certain criteria.
The criteria were set out in a decision of the Court of Justice of the European Union in a Danish case concerning VAT and pension fund management services and in a 2014 HMRC policy paper.
To receive the exemption, model portfolios must work on a pooled basis, for example, targeting a particular level of risk or return, the note says. In addition, portfolios must contain collective investments, such as unit trusts and Oeics funds, rather than individual company shares.
A section in the HMRC paper says businesses can rely on EU law until such time as UK law is changed from 2017.
Money Marketing understands currently only Standard Life Wealth is applying the VAT exemption.
Informed Choice managing director Martin Bamford says: “This is particularly topical given the result of the referendum last week and hopefully an area where the UK can regain control in time over its own tax laws.
“Advisers must be able to rely on discretionary fund managers and other providers to correctly interpret tax rules and apply them correctly. Where EU VAT exemptions are available but not being used, this is potentially costing investors money and should be addressed urgently.”