S&S ISA fund discounts can be paid into ISA accounts, not as new subscriptions

jamesd

An interesting piece in the July 2011 edition of the HMRC Guidance Notes for ISA Managers. Reduced fund annual charges, including those temporarily paid into a cash account, can be paid into the ISA and don't count against your annual limit of new subscription money.

Rebated fees and charges

Reimbursed commission

10.47a This occurs when a Fund Manager pays a percentage of their AMF (annual management fee) to the introducing agent/IFA. This payment is a payment made to the introducing agent/IFA for the retention of the business. There is no agreement with the investor for a fee reduction.

These monies are not considered to be the investor’s funds and therefore are not a permitted credit to the ISA other than by way of a subscription. The rebate is being paid outside the ISA to a third party (the introducing agent/IFA). If the introducing agent/IFA decides to pass some or all of the rebate to the investor it can only go into the ISA as a fresh subscription.

AMF rebate

10.47b This occurs when the Fund Manager has an agreement with the ISA manager - who in turn has an agreement with the investor - to charge a reduced AMF on a fund.

Where, because of procedural restrictions, only a single AMF charging facility exists, the Fund Manager will refund the AMF overcharge to the ISA manager. The ISA manager then will reimburse each investor’s ISA to put them in the position they would have been in had the correct (reduced AMF) been charged. This reimbursement is not a fresh subscription and does not count towards the annual subscription limit.

For example, the fund has a fixed fee of 3% but the manager negotiates either a reduced fee of 2% or ‘such reduction as he can negotiate’. The agreement with the investor is for a 2% fee or such reduced fee as can be negotiated. The rebate can go into the ISA without counting as a fresh subscription.

AMF rebate (WRAP platforms containing a CASH account)

10.47c Where the investor holds several different investment types, including an ISA, on a WRAP platform and the WRAP platform contains a CASH account, the rebate may be paid into the CASH account (which does not affect the ISA) or (if it is paid in respect of an ISA investment) directly into the ISA account, in which case it does not count as a fresh subscription.

If the rebate is paid into the CASH account, the WRAP manager may then transfer that part of the rebate that relates to an ISA investment to the ISA account. If he does, the transferred rebate will not count as a fresh subscription.

gadgetmind

Good find!

What would make a big difference to me is if I could pay the AMC and/or trading costs etc. from non-ISA money to keep the ISA as plump as possible.

dunstonh

unbundled platforms have worked that way for a while. Indeed, some unbundled platforms allow the charges on the ISA to be taken from a general investment account (unwrapped). At this time, it is not possible to do that with pensions though.

gadgetmind

I actually have a vague memory that my wife's small Skandia ISA works this way but that might just be for some annual platform charges.

All our SIPPdeal, Selestia and Skandia stuff in next on my review list and I might well drop you a PM...

jamesd

Skandia's documentation says that the commission on a fees-based ISA purchase has to be paid to the IFA. The IFA would then presumably forward it to the investor. Not very efficient and loses the chance to have the money paid into the ISA without counting against the limit. But this is from reading documentation alone, it might not be accurate.

I've asked Hargreaves Lansdown if they can pay their discounts directly into the ISA pot, no answer yet and it may take a little while if that question is the first they have heard of this.

The same updated HMRC documentation also contains the rules for the new children's ISA. One interesting aspect of that is that interest over £100 that would normally be considered the parent's income for tax is not treated as parent's in the ISA.

gadgetmind

I've been pulling the "loyalty bonus" money out of HL every month but will definitely have it credited to the ISA if they will allow this in future.

BTW, you can withdraw cash from any HL account online EXCEPT the loyalty bonus. OK, so they do this free by post (and I use their free envelope!) but they clearly want you to forget about it and leave it there. We only get about £30 a month, but it's the principle! :-)

dunstonh

Skandia are the opposite of HL on the trail commission issue. Skandia will allow full refund of trail on unwrapped and pension but not ISA. HL give part refund on ISA (and unwrapped) but nothing on pension.

The unbundled platforms have allowed the charge redirection to unwrapped for some years as well as the rebate of trail (and platform chunk) to the ISA.

So, you have different views on what is and isnt allowed. HMRC havent been great at confirming what is or isnt allowed. Although the RDR has seen HMRC engage and make decisions and I think this is part of it.

Next to come is the VAT issue. Will platform fees be subject to VAT or not. (not currently but based on current views, they should be.

gadgetmind

dunstonh wrote: »

Next to come is the VAT issue. Will platform fees be subject to VAT or not. (not currently but based on current views, they should be.

Ooo, bliss, we'll get to pay VAT on money being siphoned from our pensions. Yes, that should help address the pensions crisis!

jamesd

HL is checking with HMRC. Seems I was the first person to ask them about it.

dunstonh

jamesd wrote: »

HL is checking with HMRC. Seems I was the first person to ask them about it.

If you believe that.

I cannot imagine for one minute that they haven't looked at other platforms periodically to see what they do. They are the only platform or provider that has taken this stance.

gadgetmind

jamesd wrote: »

HL is checking with HMRC. Seems I was the first person to ask them about it.

They speak with forked tongue.