Platform Tax Changes Hit Rebates For Investors

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A decision to tax commission rebates to investors by HM Revenue & Customs has thrown the financial industry in to disarray.

The ruling involves discounts offered by financial firms to investors managing their money through online platforms.

Several big financial names have pledged to rebate online savings back to customers – but the tax man says this amounts to extra earnings that should be taxed.

To confuse the issue even more, some savings and investments remain outside the new rules if the payments do not go directly back to customers.

This means ISAs and self-invested personal pensions are exempt from the tax charge.

ISA and SiPPs exempt

HMRC announced the tax on rebates would be collected from April 6, 2013.

The tax man also commented that within the industry, firms felt the payments were not taxable, but felt clarification that they were taxable was required.

“Rebates to investors are ‘annual payments’ and subject to income tax,” said a spokesman. “Firms paying the rebate must deduct basic rate tax (20%) at source and pay this to HMRC. Higher rate taxpayers should declare the income on their self-assessment tax returns.”

The statement went on to explain payments within ISAs and SiPPs if the money is reinvested in the fund rather than paid direct to investors was not taxable.

The move was welcomed by many providers, like Alliance Savings Trust, as the end of rebates seen as unfair and not tax effective for many investors.

A spokesman called the announcement ‘the final nail in the coffin’ for the payments.

Charging structure review

Meanwhile, Skandia, one of the UK’s leading platform providers advocating rebates is ready to change charging structures to meet the rules.

UK managing director Peter Mann said the firm had several options open that still allows them to pass discount on to investors.

Standard Life has disclosed a similar charges review is about to start.

Many firms have expressed dismay at the short lead in time for collecting the tax on rebates, describing the ruling as creating a ‘challenge’ that will be hard to meet.

Fidelity Worldwide Investment head of business development Ed Dymott commented the move was no surprise.

“We knew it was coming but HMRC delayed collecting the taxes as such short notice will be a challenge.”

The ruling is in line with historic tax charges on dividends and savings accounts at the basic rate of income tax.

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