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Hargreaves Lansdown customers could net £15m tax rebate

Written by: Paloma Kubiak
Around 150,000 Hargreaves Lansdown platform investors could be in line for a £15m tax rebate after it won a legal challenge against HM Revenue & Customs. It could also pave the way for clients of all investment service providers to get a refund on annual fund charges.

Hargreaves Lansdown introduced a ‘loyalty bonus’ around 15 years ago, providing investors with a discount against the ongoing annual management charges (AMCs).

At the time, Hargreaves consulted HMRC on the tax position and it was confirmed that a refund of charges would not be subject to tax.

Fast forward to April 2013, and HMRC deemed loyalty bonuses paid on funds held outside ISAs or SIPPs as taxable. As such, they were taxed as income and paid net of basic rate tax.

However, in September 2013, Hargreaves launched a legal challenge against HMRC – the cost of which was borne by Hargreaves Lansdown PLC – as it felt this tax charge was an “unwarranted attack on private investors” who were “penalised by the HMRC decision”.

It has now won the legal challenge with the tax tribunal ruling that loyalty bonuses are not taxable.

Hargreaves Lansdown estimates at least £15m is to be returned to around 150,000 investors, but the ruling could have wider implications as it could also apply to customers of different fund shops who received similar discounts. Investors with holdings in Sipps and Isas will not have paid tax on the rebates.

There is one spanner in the works – HMRC has 56 days to appeal the decision.

Chris Hill, chief executive of Hargreaves Lansdown, said: “This is a victory for ordinary investors who will see at least £15m returned to them.

“HL was one of the first investment services providers to offer loyalty bonuses to reduce the cost of investing, and our clients have enjoyed significant savings for over 15 years.

“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 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.

Next steps for investors

HMRC has two months to lodge an appeal but until that stage, the money withheld could still potentially be taxed and owed to HMRC, so Hargreaves said it will wait for a successful conclusion before arranging to return monies to clients. It added that it will write to all clients affected as soon as it knows more.

It gives the following information:

  • If HMRC doesn’t appeal, it will work with it to return the amounts withheld on payments of loyalty bonus to customers. It will also stop deducting the 20% provision from future loyalty bonuses. Customers who have already completed a tax return including loyalty bonuses will be able to amend their return and seek repayment of any higher rate tax that has already been paid to HMRC.
  • If HMRC does appeal, it will wait until the appeal is decided before taking any action. In this case it will continue to deduct a 20% provision from loyalty bonuses, adding that customers should continue to include loyalty bonuses as income on tax returns. In this case it will write to clients once the result of an appeal is known. has approached HMRC for comment. We will update this news story once we hear back.

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