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MM leader: HMRC’s puzzling haste on rebates

HM Revenue & Customs’ decision to make rebates to investors taxable may have been expected by many since this paper wrote of the Government’s concerns in December.

But the speed at which the new regime will be introduced, in less than two weeks, has come as a surprise and presents plenty of logistical challenges.

From April 6 investors will be charged income tax at their marginal rate on any rebates from fund groups not wrapped in an Isa, Sipp or bond.

For basic rate taxpayers the tax will be taken from the payment while higher-rate taxpayers must account for the extra tax in their self assessment forms.

For the fund groups paying rebates, HMRC will allow for estimations on tax charges this year and it acknowledges that tax may have to be recovered later on early payments.

Most platforms have around 25 per cent of assets in unwrapped investments although some have much more. According to The Platforum, Cofunds had around 50 per cent of its assets unwrapped in November.

Skandia and Standard Life, two big players who had planned to retain a unit rebate model, are both reassessing their plans.

They are both exploring two options for reform- either asking fund groups for preferential share classes below the market average or offering lower rebates on clean share classes, where the tax hit would be less. Whether asset managers will play ball remains to be seen.

The ongoing flip-flopping from the regulator over the future of platform rebates over the past couple of years, and the growing prominence of platforms in financial services, inevitably drew the attention of the HMRC.

What is hard to understand is why HMRC did not look to introduce its tax regime in tandem with the regulator’s new platform rules, likely to come into force next Spring.

HMRC’s briefing note highlights that the FSA may make further rebate changes. It would have made much more sense, and probably saved firms a great deal of time and money, if the new tax and rebate regimes were introduced together.

It is also worrying that a Government department can introduce a new tax on investors without being able to supply an estimation on how much they are likely to pay.

Not for the first time, policymakers have not covered themselves in glory when it comes to overseeing such a vital part of financial services.



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  1. Gill Cardy sumed it up very well in a different publication. She asked why the reabte was being taxed at all? After all it is simply a refund of overpayment of a product. If you buy a new car and you get £1000 cash back from the dealer or manufacturer this is not taxable and this is exactly the same thing – a refund of part of a charge. It is a ridiculous situation to be in.

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