Have you been affected by the rebate tax?

If you are an investor who has money on an investment platform (also referred to as a fund supermarket or a wrap) then you may have noticed when you received your annual tax voucher this year that there was an additional section detailing taxable rebates.

When investing money into the stock market, you will buy units or shares. These typically have a cost associated with buying them, referred to as an annual management charge (AMC). This generally covers the cost of accessing them from a fund management group, but may have incorporated other costs too.

If you purchased and held these on an investment platform, a proportion of this charge was subsequently refunded back to you. Where this occurs it is called a fund rebate.

It is worth noting that a rebate could also occur by giving you something back in the form of cash (units in this example) and any other form of benefit. The tax applies irrespective of the payer of the rebate, which could be a fund manager directly, a platform (in our example) or an Independent Financial Adviser. This example relates to rebates involving platforms, so for other media please seek separate guidance.

In 2013, HM Revenue & Customs (HMRC) ruled that from 6 April 2013 income tax would be payable on all fund rebates received on investments. Rebate payments are not interest or dividend payments, but a special form of payment called an annual payment.

Tax is not paid prior to this date even if you held the same investments and is also not payable if you hold these investments within a tax efficient product such as an Individual Savings Account (ISA), a Self Invested Personal Pension (SIPP) or an investment bond.

For all other investment vehicles, such as unit trusts and OEICs, income tax of 20% will be charged from this date and deducted at source and paid (in our example) by the investment platform that holds the investments. These payments should be included on tax returns under the ‘Other UK Taxable Income’ section. You will be required to enter both the gross amount of payment and the tax deducted. Both can be taken from the annual tax voucher.

If you pay tax at a higher rate you will have further income tax to pay, but not if you are a basic rate taxpayer. Non tax payers are able to reclaim the tax deducted at source from HMRC via self assessment, or the completion of form R40. Remember, tax is also not payable if you hold these investments within an ISA, SIPP or investment bond.

It is possible to invest in funds which do not provide a rebate and are therefore not affected by this income tax charge. If you would like further information or guidance, please contact your Financial Planning Consultant.   

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