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Skandia considers charging shift after HMRC rebates ruling

HMRC Letter 480

Skandia is considering changing its charging structure and adopting “cleaner” share classes after HMRC said rebates from asset managers to investors will be subject to income tax from 6 April.

HMRC confirmed in a briefing note this morning that rebates paid from 6 April 2013 will be taxed.

The decision, which will not be applied retrospectively, will impact on platforms like Skandia which base their charging structure on the payment of rebates to investors.

Skandia UK managing director Peter Mann says: “The announcement by HMRC today to start collecting income tax on rebates will impact investors trying to maximise their savings because it could increase the cost of investing, particularly outside of tax wrappers.

“We have a number of options open to us and we are now evaluating which will deliver the best outcome to advisers and customers.

“We could move to cleaner share classes, such as 75bps for equity funds, and still rebate from there because a rebate on a lower share class even with tax will still result in a better net position for the client.

“Alternatively we could look to provide access to more preferential share classes that do not pay a rebate but still reflect our scale.

“Our priority will always be to offer the best possible total cost of ownership to advisers and customers.”

Alliance Trust Savings says HMRC’s decision to tax fund rebates at a client’s marginal rate will be the “final nail in the coffin” for unit rebates.

ATS managing director Patrick Mill says: “Today’s announcement from HMRC that rebates will be taxed at a client’s marginal rate of income tax is surely the final nail in the coffin for unit rebates.

“Applying unit rebates from an industry perspective would be highly complex to both administer and to explain to customers.

“Taxation of rebates will apply to funds held with a tax sheltered wrapper, such as a Sipp or ISA. So a higher rate tax payer could lose almost half of the value of the rebate in tax.”

Fidelity Worldwide Investment head of business development Ed Dymott says while the decision to tax rebates is not a surprise, meeting the 6 April deadline will “create challenges” for the industry.

He says: “We are disappointed that HMRC has chosen not to delay the implementation of these taxes in line with the RDR platform changes, having only two weeks notice will create challenges for the industry.

“However, we are pleased HMRC has listened to a number of the concerns we expressed, including not making this retrospective and introducing some flexibility in the withholding requirements on payments during 2013 whilst payers update their systems and processes.”


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There is one comment at the moment, we would love to hear your opinion too.

  1. Some quintessential logic in applying existing existing principles is needed here.

    If the rebate is from a charge that is deducted from the taxable yield, it makes sense for it to be taxed as income as per the HMRC decision. Excluding effects on PAs this should be tax neutral for basic rate tax payers on dividends that have ACT accounted for

    If the rebate comes from a charge on the capital and then it should surely count as a withdrawal, applicable to the covering the existing regimes governing Capital Gains, Chargeable Gains or Unauthorised Payments unless, of course, it remains in a relevant wrapper and is just a transaction within it.

    Aside from this, if is a problem with combining RDR and changes, some sort of delay would be sensible. But I guess the world is just not like that

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