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Annual payments subject to ITEPA 2005, s 683, says Revenue
HMRC have issued an explaination of the tax treatment of trail commission passed on to investors in collective investment schemes and other investment products, including life insurance policies.
The department believes the payments – not considered taxable in the past – are subject to income tax under ITEPA 2005, s 683 because they are made on an annual basis.
Payers should deduct basic rate income tax from the commission, and the investors ought to account for higher rate tax due through their self-assessment tax returns.
Payments of trail commission made to an ISA holder by the manager, in line with all other income arising from ISAs, are not taxable, and they do not count towards the maximum amount that may be invested in a year.
The Revenue will not seek to collect tax from past payments, given they were generally believed to be tax-ree, but individuals who receive trail commissions for the tax year beginning 6 April 2013 should include the payments as other income from which basic rate income tax has been deducted at source.
The gross amount of the payment should be shown in box 16 and the tax deducted in box 18 on the main form.
Basic-rate taxpayers will have to complete a self assessment tax return only if they receive a payment from an offshore distributor, because it will not have had UK tax deducted at source.
As a result of the retail distribution review, payments of trail commission will no longer be paid on newly advised business.
For more information, see Revenue & Customs Brief 04/13
Will this have any impact for a corporate investor?