Taxation of Investment Platform Transfer Bonuses

GeoffTF

Bonuses for switching bank accounts appear to be tax free, but I have not been able to find an authoritative statement for the taxation of investment platform account transfer bonuses. Does anyone have a link?

bucklb

TL;DR - I suspect this will fall within your annual "trading allowance" of £1,000

I have absolutely no expertise in this area, but a friend of my son has done a little tutoring work and asked if I knew what the tax position on it might be. Having time on my hands I did a bit of googling and think this kind of side hustle (like selling on eBay etc) is often covered by a trading allowance:

https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income

I think the trading allowance is a little like your saving interest allowance and is in addition to your personal tax allowance.

The main question was really if this kind of stuff needs to be actively declared to HMRC. My belief is that if it's less than £1,000 then probably not. Obv my beliefs and reality are not always the same

bucklb

You might get more answers on https://forums.moneysavingexpert.com/categories/cutting-tax …

phlebas192

The authoritative source for this is the HMRC manual.

FIREDreamer

https://forums.moneysavingexpert.com/discussion/comment/81880463#Comment_81880463

Clear as mud.

EDIT: As it is effectively a discount against future fees I would hope they aren’t taxable.

wmb194

https://forums.moneysavingexpert.com/discussion/comment/81880506#Comment_81880506

No, that's clear and fits with the general understanding. As an individual, switching cashback is exempt whilst if you refer-a-friend it should be declared as other income.

masonic

The translation is that cashback does not fall into any category of taxable income assuming you are not acting in the course of your business or employment, whereas referral bonuses are taxable.

FIREDreamer

https://forums.moneysavingexpert.com/discussion/comment/81880522#Comment_81880522

Not really plain English, probably deliberately obfuscatory, but glad you interpret it as tax free.

GeoffTF

I have to agree that the HMRC Manual is not as clear as it might be. Statement of Practice 4 (1997) is perhaps a little clearer. Cashback schemes and tax is crystal clear. That was written by a firm of accountants, but their qualifications are not clear. (Anyone can call themselves an accountant.)

My concern is that (for example) Freetrade is offering £5K to transfer into what would potentially be a free ISA. That cannot reasonably be called a refund of fees that would otherwise be paid (unless there is a catch). HMRC's statement of practice and the legal position may not be the same. I fear that HMRC might cry foul and decide that cashbacks like these fall outside its statement of practice. I would not be keen to transfer a £500K+ ISA to Freetrade anyway, but others may be less cautious.

It is true that similar considerations apply to bank transfer bonuses, but the sums of money involved are not as large there. HMRC must be well aware of these cashbacks and has not taken any action.

masonic

https://forums.moneysavingexpert.com/discussion/comment/81880588#Comment_81880588

Bank accounts are generally free products to consumers too and it is possible to obtain hundreds of pounds per tax year over multiple offers. It is likely the average paid out to someone taking up the Freetrade incentive will be much less than £5k. In both types of product the customer is capable of incurring charges.

HMRC has probably not bargained for businesses to fight quite so hard to lose money acquiring customers.

GeoffTF

https://forums.moneysavingexpert.com/discussion/comment/81880600#Comment_81880600

In the case of the platforms, the large transfer bonuses go to those who transfer in large accounts. Even if these accounts are not even marginally profitable (after paying the cashback) that may make sense. It artificially inflates the Assets Under Management, which may increase the price that a potential buyer is willing to pay. You are effectively being paid a bonus to lend them your account while they sell the business.