Her Majesty’s Revenue & Customs (HMRC) has confirmed that transactional fees for discretionary management services will not need to include VAT.
The ruling stated that day-to-day transaction costs will remain exempt from the 20% sales tax.
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The exemption had been at risk since last year when the European Court of Justice (ECJ) determined that discretionary portfolio management should not be exempt from VAT based on a case involving Deutsche Bank.
HMRC said that VAT will only be applied to those charges that take the form of ‘periodic’ fees charged on a flat-fee basis where the manager has no direct link to the execution of the transaction.
The revised VAT treatment will come into force on 1 December 2013.
HMRC said: "As a result of the judgment, it is clear that fees charged by portfolio managers on an annual or other periodic basis for the purchase and sale of securities can no longer be treated as exempt from VAT, regardless of whether or not a separate charge is made.
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By GlobalData"Portfolio management services can be distinguished from other financial advisory services because there is an ongoing commitment to monitor and manage an individual client’s investment portfolio to formulate investment decisions or recommendations," HMRC added.
