Fund Platform Rebates to Become Taxable!

le_loup

Just seen this bad news reported by Candid Money.
Seems that rebated of trail commission outside ISAs and Pensions will be taxable after 5th.
http://www.candidmoney.com/articles/269/trail-commission-rebates-to-be-taxed

Shaolin_Monkey

Hmm, I've noticed that HL's rebate (the 'loyalty bonus') on my S&S ISA is credited outside of the ISA, so presumably that will be subject to income tax going forward? They should change that, as some of their competitors pay the rebated commission into the ISA.

Long term I guess this will accelerate the move towards clean funds that don't pay commission. Can't come soon enough if you ask me.

dunstonh

Long term I guess this will accelerate the move towards clean funds that don't pay commission. Can't come soon enough if you ask me.

The DIY platforms have been very tardy on this front. However, when you look at the bad coverage that iii got when they moved to clean basis, I suppose you can see why.

Perelandra

Shaolin_Monkey wrote: »

Hmm, I've noticed that HL's rebate (the 'loyalty bonus') on my S&S ISA is credited outside of the ISA, so presumably that will be subject to income tax going forward? They should change that, as some of their competitors pay the rebated commission into the ISA.

Long term I guess this will accelerate the move towards clean funds that don't pay commission. Can't come soon enough if you ask me.

That's an odd one- I would've thought you'd prefer rebates for investments within an ISA to be paid within the ISA, but but rebates for investments within a SIPP to be paid outside the SIPP.

Linton

According to iii HMRC rules prevent fund rebates being paid into the ISA, which is why they pay them into the non-ISA Trading Account. It seems a bit much to then tax them as well.

dunstonh

Linton wrote: »

According to iii HMRC rules prevent fund rebates being paid into the ISA, which is why they pay them into the non-ISA Trading Account. It seems a bit much to then tax them as well.

Although most (if not all) of the IFA platforms pay them within the ISA.

Linton

dunstonh wrote: »

Although most (if not all) of the IFA platforms pay them within the ISA.

Mmm. I wonder how that works. Fund rebates can hardly be regarded as investment income. They cant be regarded as a new payment into an old ISA so presumably they must count against the current year's ISA allowance which could break the rules on investing in multiple current ISAs.

dunstonh

Linton wrote: »

Mmm. I wonder how that works. Fund rebates can hardly be regarded as investment income. They cant be regarded as a new payment into an old ISA so presumably they must count against the current year's ISA allowance which could break the rules on investing in multiple current ISAs.

On unbundled platforms, the charges and rebates are all handled explicitly within the ISA. They dont go against the ISA allowance. None of them have had any issues with HMRC and the recent technical bulletin has no issue over it either (with pension or ISA). You would have to say that platforms that wouldnt rebate within an ISA interpreted guidelines differently to those that did and it turns out they made the wrong call. However, HMRC guidelines are often vague enough to allow different interpretation.

chris1

Linton wrote: »

Mmm. I wonder how that works. Fund rebates can hardly be regarded as investment income. They cant be regarded as a new payment into an old ISA so presumably they must count against the current year's ISA allowance which could break the rules on investing in multiple current ISAs.

The HMRC note specifically says it won't be counted against your annual ISA allowance.

grey_gym_sock

now that i've thought about it, i agree with HMRC that rebates are a kind of income. however, ...

where rebates are in respect of an ISA, i don't see why rebates should be taxable. since other income from ISAs is not taxable, regardless of whether it's paid inside or outside the ISA.

meanwhile, i don't see why it's allowed to pay platform charges in respect of an ISA with cash outside the ISA, without thereby subscribing money to the ISA.

as ever, HMRC keep making small technical changes, but are incapable of grasping a simple principle and applying it consistently.

Totton

My understanding is that where the rebate arises from ISA holdings it doesn't matter if it is paid outside of the ISA. In my case at HL, the fund rebate is paid outside of the ISA but will not be taxable unless added to from non-ISA holdings, hence I will switch those to non rebate payers. For me this is just a continuing trend towards hitting average job public hard as with the reduced 20% tax band, we pay more and have ever worse politicians to spend it.