Confusion over adviser charging on bonds

Under existing rules, clients can take 5 per cent a year in deferred tax allowance as income from onshore and offshore investment bonds. Normally, if adviser charges are take from the bond it would count towards this figure.

Guidance from HMRC, confirmed to FTAdviser, suggests provider-facilitated adviser charges for advice on underlying investments can be paid by the provider from its profits in some instances. This is due to the fact HMRC views the provider as the owner of assets.

This would mean the full 5 per cent deferred allowance can be taken as income. The FCA confirmed it is looking into the issue.

However, further clarifications provided to FTAdviser could mean this advantage is not applicable in the majority of cases.

HMRC said that the guidance would apply if the life company receives the advice “directly”, rather than the policyholder, then the guidance would apply and the charge can be paid out of provider profits.

In the vast majority of cases, clients receive the investment advice and thus the guidance would seemingly not be relevant.

HMRC said in a statement: “If the investment advice is provided direct to the life company then there will be no provision of services to the policyholder so there can be no question of a part disposal reducing the policyholder’s 5 per cent allowance.

“Instead the cost of the investment advice will be a deduction against the life company’s profits.”

A HMRC spokesperson told FTAdviser: “If the advice was supplied directly to the policyholder, then any fees paid from the bond would be included in the calculation of withdrawals for the purposes of the 5 per cent deferral during any given year.

“If the FCA are reviewing this it may be that in the future we will review our guidance. If there are outcomes from that [their review] we’d have to look at what the FCA did and review as necessary.”