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Hargreaves wins 'discount tax' battle with HMRC

Hargreaves Lansdown wins tax case against HMRC over fund loyalty bonuses, which could see investors receive at least £15 million.

 
Hargreaves wins 'discount tax' battle with HMRC
 

Hargreaves Lansdown has won a court battle with HM Revenue & Customs (HMRC) over tax applied to the 'loyalty bonuses' it pays to fund investors, in a ruling that could see at least £15 million returned to investors.

Judge Thomas Scott ruled in favour of the online stockbroker in the first tier tax tribunal in its challenge to taxes on the payments, which HMRC introduced in 2013.

Hargreaves Lansdown has paid the loyalty bonuses for more than 15 years and they form a crucial part of the platform's discount broking model.

They continue to be employed on share classes of funds dating back before the introduction of retail distribution review (RDR) rules in 2013, allowing investors to be reimbursed for the part of fund annual management charges (AMCs) once reserved for platforms and financial advisers, before those payments were banned.

And they are still a feature on most of Hargreaves' Wealth 150+ funds, where the broker has negotiated a discount on fund AMCs for clients.

Loyalty bonuses are used to rebate part of the fund's AMC to clients in order for them to secure the discounted price.

In March 2013, HMRC changed its stance on the payments, announcing they should be taxed as income and paid net of basic rate tax on funds held outside ISAs and Sipps.

Hargreaves has set aside £15 million in potential tax on around £75 million in loyalty bonuses paid on funds outside ISAs and Sipps since 2013. This can now be returned to investors, unless HMRC successfully appeals the decision.

That cash relates to basic rate tax on the payments. Higher rate taxpayers have had to declare the bonus payments on their tax returns and will now be entitled to claim that money back.

Hargreaves Lansdown chief executive Chris Hill described the ruling as 'a victory for ordinary investors'.

'Hargreaves Lansdown was one of the first investment services providers to offer loyalty bonuses to reduce the cost of investing, and our clients have enjoyed significant savings for over 15 years,' he said.

'We saw the "discount tax" which HMRC introduced in 2013 as unwarranted attack on private investors, so we launched a legal challenge, and I am delighted that the tax tribunal has supported our view.'

5 comments so far. Why not have your say?

Anonymous 1 needed this 'off the record'

Mar 20, 2018 at 14:57

Yes, hope hmrc do not challenge the ruling. Hmrc is turning into a nickle and dime outfit or a pain the neck for genuine citizens.

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Michael Dent

Mar 20, 2018 at 16:46

don't blame hmrc - blame the politicians (and no they are not the same)

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MutleyB

Mar 20, 2018 at 17:22

I am now wondering if this ruling also applies to AMC rebates paid to customers of other investment platforms, and if so will there be refunds of the tax which was automatically deducted. Also, how to actually claim a refund of any relevent tax paid directly to HMRC?

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Ken Adams

Mar 20, 2018 at 17:27

Anonymous, you mean like the rest of the government.

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Rob Walker

Mar 24, 2018 at 12:46

You might also question whether the SIPP charges from HL can be claimed against income on the HMRC annual tax return. For SIPP purposes we are treated as an 'employee' and therefore any expenses incurred against this income have their own section on the tax return.

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