HMRC reveals how adviser charging affects Isas
HM Revenue & Customs today (12 October) issued a clarification on how additonal cash rebates generated as a result of new adviser charging rules will affect Isa subscriptions, warning that cash rebates that are paid back in to an Isa will count towards a client’s subscription limit.
HMRC explained that where less is deducted from the customer’s Isa payment than before due to commission being rebated rather than paid to an adviser this does not count as an additional subscription.
However, HMRC stated where the rebate is paid to the customer as cash, including into a non-Isa cash account - pending the FSA’s proposed ban on cash rebates - and the customer chooses to invest that amount into the product, that payment would be a new Isa subscription.
As an example, the Revenue stated that a provider would receive a client’s subscription of £100 and deduct £5 - £2 commission to pay to the adviser and £3 management charge - and pay £95 into the Isa.
Once the Retail Distribution Review rules are in force, HM Revenue & Customs stated providers will no longer be able to pay commission to the adviser, so they would deduct £5 but divert £2 of that £5 back into the product to buy additional units.
HMRC stated this will not be an additional subscription from the customer - the customer’s contribution is still £100, but they would have £97 invested in the Isa rather than £95.
However, in a Guidance Note HMRC stated: “The situation would be different if the amount was paid to the customer as cash (perhaps into a non-Isa cash account) pending the ban on cash rebates the FSA intend to introduce.
“If the customer then chose to pay the cash into the product - it would count as a new subscription.
“Where an adviser chooses to give up trail commission he has earned for pre-RDR advice, so that he can have a single remuneration agreement with the customer, the payment is from the adviser to the customer (even though paid indirectly via the provider), so this would count as a new Isa subscription, and would count towards the annual Isa subscription limits.”
This HMRC guidance note is summarised in FTAdviser’s new Regulation Tracker tool. Click here to read our summary of this guidance note.