Tax on ISA trail commission rebate?
|Tax | Income Tax
Asked by LinW13, submitted
16 May 2014.
I currently hold equity funds with two different fund supermarkets. Both rebate trail commission to me. Both are in ISA wrappers.
Platform A has deducted Income Tax. Platform B has not.
Platform A is adamant that Income Tax has to be deducted even thought it has been paid in an ISA wrapper. They argue that the transaction is in two phases. The rebate is paid to them - then they pay it to me. And they insist the second phase is taxable.
Platform B states that it is an ISA - so no Income Tax is due.
So Justin, who is correct - Platform A or B ?
Answered by Justin on 02 June 2014
Trail commission rebates should not be taxable within ISAs (or indeed pensions). HMRC’s guidance on the topic quotes:
"Annual payments arising in an ISA account are exempt from taxation. As a result, where payments of trail commission are made to an ISA account holder by the ISA manager then these, in line with all other income arising in ISA accounts are not taxable and the managers are not required to deduct tax at source on the payment. Additionally, provided that the payments are reinvested within the ISA without ever leaving the control of the ISA manager, then the payments will not count towards the maximum amount that may be invested in the ISA in any year."
You can view more details here http://www.hmrc.gov.uk/briefs/income-tax/brief0413.htm.
The only reason I can think that platform B is insisting tax is payable is if the firm is in fact a discount broker
rather than platform and for some reason they are receiving commission from the underlying platform/ISA manager and then sending the money onto you - rather than the rebate being given at source (via unit or cash rebates) and remaining within the ISA wrapper. My understanding is that in this instance the rebate would potentially be taxable.
Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific
investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if
necessary, use a qualified professional adviser.
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