Posted by James Pearson on 27 Mar 2013

Trail Commission Turn Around

If you hold an investment product, a recent clarification of HMRC’s position may lead to an income tax charge.

Many investment products, including life insurance products, ISAs, self-invested pensions and collective investment schemes pay what is known as trail commission. This is a commission payment made by the investment manager to an intermediary (such as an independent financial adviser). In some cases, the intermediary passes this commission payment on to the investor and this has generally been assumed to not be taxable on the investor.

HMRC have made it clear that they do not share this view and consider such payments to be taxable income of the investor.

If you are an investor it may not always be easy to be sure whether you receive such trail commission payments as the intermediary does not necessarily need to pay the cash to the investor for taxable income to be received by the investor. HMRC believe that a tax charge will be due if the intermediary uses the trail commission to meet a liability of or to provide a benefit to the investor. This would cover a situation, common since the recent Retail Distribution Review by the Financial Services Authority, whereby rather than charging the investor directly the intermediary takes the trail commission as payment.

HMRC have stated that they do not intend to revisit the taxation of past payments but that it is important to treat such payments correctly going forward.

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