HMRC have been busy

8th April 2013

On the 26th March HMRC announced some changes to tax rules which potentially impact on those clients with Nucleus General account investments.

Essentially funds that generate a “rebate” of fund charges which are repaid to the Nucleus Cash account on the platform are to become taxable from 6th April 2013.  Our understanding is that clients who are in receipt of such rebates will need to declare them on their self-assessment tax returns.

The Background

Historically many fund managers operated a charging structure where a proportion of their manager’s annual management charge was paid to the adviser in the form of fund-based commission.

With the advent of 3rd party administrative platforms (including fund supermarkets and wraps) many fund managers also rebated a proportion of their charge to the platform provider. Some platforms retained this rebate; others (including Nucleus) paid the rebate into the client’s cash account.

It is proposed that these rebates are to be banned.  As a result of this change fund managers are beginning to issue new share classes which have a lower annual management charge and do not pay fund based commission or make rebates to platforms.  We call these “clean” shares.  We have already revised our model portfolios to include only “clean” shares and have been recommending that clients switch their existing holdings and redirect any future contributions to the new model portfolios. In some cases the net saving is only a few basis points, but as the saying goes “a penny saved is a penny earned”.

What we propose

The timescale between the announcement and the date that the change took effect gave us very little time to take any action.  Unless we have already contacted you we are not proposing any immediate action because:

  • The rebates are small and any tax liability is likely to be insignificant
  • Changing the funds to ones with no rebate is possible, and will ultimately be implemented, however to act now would create a much larger Capital Gains Tax liability than any income tax liability impact resulting from the rebates
  • Nucleus is working on a solution which they hope will allow changes at a platform level which should not then generate a Capital Gains Tax liability

If you are affected we will either review your investments and agree appropriate action at our next meeting or write to you earlier if Nucleus is able to provide a platform level solution.

In the meantime please feel free to contact us if you have any questions or queries.