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Hargreaves Lansdown fights HMRC over 'discount tax'
Hargreaves Lansdown is challenging HM Revenue & Customs' decision to tax bonuses and discounts paid to DIY investors.
Hargreaves Lansdown has decided to challenge the tax man's raid on loyalty bonuses and discounts that it and other execution-only brokers pay to investors in funds.
In March HM Revenue & Customs' (HMRC) stunned the investment industry when it announced that from 6 April rebates - a share of the annual management fee on funds passed to investors by platforms such as Hargreaves - would be taxed in relation to investments held outside an ISA or Sipp.
The move angered brokers and fund 'supermarkets' as it overturned their long-standing interpretation of the tax rules and threatened their ability to pay loyalty bonuses and offer discounts on fund charges.
Rebates received in ISAs or Sipps remain untaxed, however.
Hargreaves Lansdown, the country's largest funds supermarket, immediately branded the move a 'discount tax'. In April Peter Hargreaves, co-founder of the Bristol-based firm, told Citywire it was considering legal action. After taking the advice of counsel it has decided to pursue a legal challenge, which it expects to take several months.
Chief executive Ian Gorham said: 'The introduction of the "discount tax" was extremely disappointing news and an attack on the small investor. The "discount tax" is anti-competitive. Loyalty bonuses have been hugely popular with investors and helped them save money on investing in their favourite funds,' he said.
Hargeaves Lansdown reckons it has saved investors over £1 billion in discounts and loyalty bonuses. 'We feel it’s important to take a stand on behalf of investors. When we introduced loyalty bonuses we consulted on its tax position and it was clear, as a refund of charges, it should not be subject to taxation,' Gorham added.
The legal challenge comes at a turbulent time in the broking sector. Loyalty bonuses - which Hargreaves only introduced to Sipp investors this year - were already endangered by new regulations banning investment and pension providers paying commission to financial advisers. Under the new rules execution-only brokers, who do not offer investors advice, will also be barred from taking payments from fund management groups from next April. In their place they will have to charge their customers fees. Last week Hargreaves said it would delay announcing its new prices until next year.
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by Gavin Lumsden on Dec 10, 2013 at 16:51