HM Revenue and Customs (HMRC) is considering taxing fund rebates paid by platforms to consumers in the latest crackdown on the payments.
Investment Week, IFAonline's sister title, understands the Revenue is already consulting on making the changes in a move which could impact rebate deals from leading fund platforms.
A tax on rebates would hit bundled share classes, which are offered by most of the UK's platforms, and would impact both unit rebates and rebates to clients' cash accounts.
HMRC is preparing to take action in order to close off what it sees as a potential way for consumers to avoid paying tax.
It is the latest assault on rebates, following the Financial Services Authority's (FSA) announcement last year that it intends to ban payments from providers to platforms and cash rebates to consumers.
In its most recent consultation paper, the regulator said the way in which the consumer currently pays for the platform service "hinders transparency" and "has the potential to negatively affect competition in the market".
It said, in line with the changes introduced on adviser charging in the Retail Distribution Review (RDR), it does not feel product providers should be able to "buy" distribution. Final rules will be published this quarter.
The move could erode the competitive pricing advantage some platforms have thanks to their rebate deals, because if a consumer then becomes subject to tax on a rebate, it lessens its worth.
However, one source said the introduction of such a tax now makes little sense as rebates have already had their day.
"Rebates are becoming less material and flattening out already, so the time to do this has probably already passed," they said.
The introduction of the tax is fraught with pitfalls and loopholes because of the variety of ways platforms use rebates.
While many wraps pay them into clients' cash accounts, other platforms retain rebates for themselves, allowing them to offer clients lower platform charges. It is not clear how HMRC would view this, and whether it would be considered a benefit to the client which should be taxed.
It also raises a number of issues for individuals. Guidance would be needed on the treatment of rebates paid to investors inside a tax wrapper such as a SIPP, for example.
Many investors who use platforms do not carry out self-assessments, but the change could mean they have to in future, or else pay an adviser or other professional to carry this out for them.
Platforms themselves may also have to send out additional reports to investors who are paid rebates in any form, so they can send them to HMRC with their tax returns.
Investment Week understands any tax change from HMRC - which would be applied depending on an individual's own tax band - would not be retrospective.
HMRC failed to respond to requests for comment at the time of going to press.
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