Do investment fund service charges necessarily attract capital gains tax?

kjello · 20 September 2017 at 4:25PM

My so-called ethical investment fund has written to all members saying they will be introducing an annual service charge in addition to the present annual management charge. I understand that this is common but there are two mystifying aspects:

1.We are told to contact HMRC about the capital gains tax implications since the bank will be taking the service charge from the fund and this will be a capital gain. This sounds unnecessarily complicated, and contrary to the whole idea of stocks and shares ISAs which are supposed to do away with tax complications. Is there a simpler solution?

OR …

2. The fund is a wholly owned subsidiary of the bank taking the admin charge. Can’t they just increase the annual management charge and pass it on to the bank as commission or something?

dunstonh · 20 September 2017 at 4:46PM

My so-called ethical investment fund has written to all members saying they will be introducing an annual service charge in addition to the present annual management charge. I understand that this is common but there are two mystifying aspects:

That is not common.

Fund houses do not put in place extra charges unless you are building their own investment platform. However, where they do that, they tend to move you to a clean share class that lowers the fund charge as well.

1.We are told to contact HMRC about the capital gains tax implications since the bank will be taking the service charge from the fund and this will be a capital gain. This sounds unnecessarily complicated, and contrary to the whole idea of stocks and shares ISAs which are supposed to do away with tax complications. Is there a simpler solution?

CGT would apply to any unwrapped holdings. If you hold them within a tax wrapper, then CGT would not be an issue.

2. The fund is a wholly owned subsidiary of the bank taking the admin charge. Can’t they just increase the annual management charge and pass it on to the bank as commission or something?

This sounds like a bank wanting to move you from bundled share classes to unbundled share classes held on a platform. Whilst legacy assets are allowed to continue to be held for the time being, there are pressures on firms to convert people to unbundled share classes. What you seem to want it the old way of undisclosed commissions. However, the industry has moved away from that and fees are in their place.

Do investment fund service charges necessarily attract capital gains tax?

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