HMRC clarifies RDR position for ISAs

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HM Revenue & Customs (HMRC) has clarified its position on commission rebates into individual savings accounts (ISAs) in its latest update.

The government says rebates from managers into ISAs when the retail distribution review (RDR) comes into effect will be counted as new units and will not be classed as a new subscription.

However, cash rebates to the customer which are then reinvested in a new ISA will be classed as a new subscription.

Trail commission forfeited by advisers in favour of a single remuneration agreement would also count as a new subscription to an ISA, despite the payment which will be made by the adviser to the customer by way of a provider.

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Readers' comments (3)

  • Confused?

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  • Yes, definite confusion, not regarding the explanation by HMRC, but by its prior implication.
    If, with RDR, commission is being abolished, to be replaced by fees, why should there be any contracts that function with commission, thus creating the opportunity to rebate.
    Like Pension Simplification, the clarification of client charging is creating ever more confusion.
    Wonder what the betting is on clients walking away from product advice because they not only do not understand the product but more importantly are totally confused about the costings.
    And will your PII cover the confusion with HMRC and the tax implications of your advice?
    If the FSA had brought RDR in over a number of years these problems could have been addressed in a realistic manner. Bringing everything into action on one day is a recipe for disaster, especially as the main problem area are the providers of products who still appear to be functioning on the good old "pile 'em, and loads of commission" approach.
    Nick Cazalet suggested some time ago that the UK commission based business model was badly flawed, but so ingrained that any changes were likely to produce major problems. Those changes will have to be made very quickly now. If what Mr Cazalet said holds any credence then be prepared for a major problem in finding suitable products to implement the advice for which you have charged you clients so heavily - on the FSA's instructions.
    Before the Army go into battle they tend to have a try out of battle plans to ensure they have some hope of working. Pity the FSA do not have similar approach.

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  • Will there actually be any rebates of commission into ISAs under RDR? Surely it will be a matter of not deducting fees, unless the provider chooses not to offer clean units?

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