Summer holidays are always a good time to bury good news, and as I glanced at my iphone from my hotel pool lounger the other week this piece caught my attention. I was on all-inclusive mind, so I quickly went back to another mojito, but now we (me) are all back at work, it’s certainly worth highlighting.

This is almost certainly the final chapter in the long running smackdown between HMRC and Hargreaves Lansdown as to whether fund rebates should be treated as annual payments for income tax purposes and taxed accordingly. HMRC said yep, HL disagreed and took the matter to a tax tribunal. Originally this found in favour of HL, however HMRC appealed the decision just over a year ago, and their appeal has been successful. The FT say HMRC are “pleased” with this decision and the Bristol massive are “disappointed”.

Someone else who should be disappointed is anyone who invests via any platform, not just HL. The recent FCA market studies have shown that there is weak price competition in many areas of the asset management industry and the FCA encourages and expects platforms to pay a role in negotiating discounts for their investors.

A reminder, if needed, that Platform Service Operators are banned from trousering any of this discount themselves. Whatever discount they can beat out of the fund groups gets passed onto the investor in full.

It’s the method of facilitating this discount that was at the centre of the HMRC/HL case. Again, a reminder if needed that there are two potential methods….

  1. Rebates. The platform negotiates a discount from the fund group, which is then passed back to the investor in full in the form of additional units (rebate)
  2. SUPERCLEAN™*. The platform negotiates a discount and the fund group creates a bespoke shareclass with a lower OCF

Of the two methods, rebates are the most administratively efficient (if far from the most transparent) for all concerned, most notably because they avoid the need (and cost of) creating multiple shareclasses. As the recent Woodford issues have shown, this can create a barrier to exit.

This isn’t just about HL: it impacts every platform and every platform investor. As a result of this ruling we will continue to live in a world of multiple shareclasses: this is much better for transparency but undoubtedly creates complexity. And the expense of administering this complexity is ultimately only going to be borne by the end investor.


*not actually trademarked. Come on.