Around 150,000 investors could be in line for a £15 million rebate after the tax tribunal ruled HM Revenue & Customs had been incorrectly treating fund loyalty bonuses as taxable since 2013.
HMRC now has two months to appeal the ruling in a case brought by Hargreaves Lansdown, one of the first platforms to offer such bonuses, in response to the tax authority’s 2013 decision.
The tax authority had argued that loyalty bonuses operated as a form of trail commission rather than a simple rewards scheme. The tribunal rejected that judgement, however.
Hargreaves Lansdown chief executive Chris Hill (pictured) said: ‘This is a victory for ordinary investors who will see at least £15 million returned to them.
‘We saw the ‘discount tax’ which HMRC introduced in 2013 as unwarranted attack on private investors, so we launched a legal challenge, and I am delighted that the tax tribunal has supported our view.
‘The ruling will not only see money returned to investors, but will also simplify their tax affairs, as there will be no need to declare the loyalty bonus on their tax returns.’
Hargreaves began offering loyalty bonuses to unit holders in 2003. For funds held outside tax wrappers, HMRC ruled in 2013 that ‘the payments made to investors are “annual payments” and therefore subject to income tax’.
In the decision handed down last week the tribunal’s Judge Thomas Scott ruled that the fund charges used to denominate rebates were compulsory and their return could not therefore be considered as taxable income, however.
‘HL consistently and clearly presented the loyalty bonus to investors as a method of reducing or discounting the net cost of investing in a fund through HL,’ the tribunal ruled.
‘The evidence makes it plain that the nature and quality of a loyalty bonus payment is that it is not a “profit” to an investor, but a reduction of his net cost.
'It is quite unlike an annuity payment or interest in respect of which a recipient need do nothing but sit back and receive the payments.’