UK-based HM Revenue & Customs (HMRC) plans to extend its tax on rebates to some discount brokers.
HMRC’s tax on rebate extension applies even on funds held inside an ISA.
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The revenue’s decision in April 2013 to apply income tax on unit and cash rebates paid through the general investment account, excluded investments held in other tax wrappers, including self-invested personal pensions (SIPPs) and ISAs.
However, it is understood HMRC is set to release further guidance on taxing rebates paid into ISAs, after a number of queries from discount brokers.
In the updated guidance, cash rebates paid by the ISA manager – typically a fund manager or platforms – to a discount broker and then on to client will also be subject to income tax, even if the discount broker passes on the full rebate.
A spokesperson for HMRC said: "If the payment is made out of the ISA wrapper to a third party, and that third party then makes a payment to the investor, then the payment may be taxable."
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By GlobalDataThe decision is expected to affect a number of discount brokers operating this model, but not those retaining rebates within the ISA wrapper, including Chelsea and Hargreaves Lansdown.
Phillip Rhoden, founder of Clubfinance, a discount broker expected to be affected by the updated legislation, said the decision would primarily hit older savers dealing directly with fund groups.
