21st March 2013

FundsNetwork: Proposed abolition of Schedule 19 stamp duty reserve tax

Paul Kennedy, Head of Tax Planning at FundsNetwork, says: "The proposed abolition of schedule 19 stamp duty reserve tax may look a tad dull but is of considerable relevance to investors in UK investment funds. For many years, transactions in fund units have been subject to a modified version of stamp duty: costs to individual funds vary but UK equity funds can typically pay away 5-8bps a year. This is generally charged to the fund capital and has the effect of reducing fund performance and therefore the investor’s return by 5-8bps a year. The odd fund makes a levy up front on new investments to mitigate the effect of the tax to be paid by the fund and FSA rules permit either option.

"The tax is complex and costly for platforms and asset managers to administer relative to the amounts paid to the Exchequer and the UK investment funds industry has lobbied for many years for its abolition. It is also frequently cited as one of the factors that put UK funds at a competitive disadvantage. Abolition of the charge will not be formalised until the 2014 Finance Act so will not take effect for a while. However, assuming it goes forward investors in UK equity and many multimanager funds should get a performance boost when the fund is no longer required to pay the tax. It will also be interesting to see how those fund groups currently levying SDRT upfront react in the interim."

Wraps & Platforms, Budget, Tax, Trust & ISA