Investment funds and life insurance policies: commission payments to investors

HMRC have issued Brief 04/13 which explains their view on the tax treatment of commission passed on by an intermediary to individual investors in investment funds and life insurance policies.

HMRC regard these amounts as annual payments.  Therefore they are subject to deduction of tax at source unless the payments are retained within an ISA or SIPP account.

In the past such payments were often assumed to be not taxable.  HMRC acknowledge that they have not challenged this approach in the past and may possibly have given unclear advice, leading to a practice of non-taxation in the hands of investors.  HMRC will therefore not seek to collect tax for earlier years from either payers of commission or individual investors.  However, payments made from 6 April 2013 must be treated correctly.

HMRC recognise that deduction of tax may initially involve manual calculations with some approximation. They will accept an approximation of the tax deducted at source up to the end of the calendar year 2013 providing that this is as accurate as reasonably possible and that the payer makes arrangements to update systems by the end of 2013.

The Brief contains links to a technical note and draft guidance.  The draft guidance includes commentary on the tax treatment of adviser charges.

The Brief can be found at http://www.hmrc.gov.uk/briefs/income-tax/brief0413.htm.