Bristol-based Hargreaves Lansdown (HL) took the HMRC to a tax tribunal over the taxation of loyalty bonuses, leading to the ruling that they are not taxable. 

The web-based investment broker introduced refunds of the annual management charge (AMC) as loyalty bonuses 15 years ago but HMRC decided they should be taxed as income, despite previously assuring investors they would not, a move which sparked the legal challenge.

Following the judgement the decision was hailed by HL as “a victory for ordinary investors.”

Chris Hill, chief executive of Hargreaves Lansdown, said: “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 that 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.
 
“Furthermore, it is likely to benefit clients of all investment services providers who offer rebates on annual fund charges, not just clients of HL.”

However Mr Hill signalled a cautionary note, adding: “HMRC has the right to appeal, so the champagne is on ice for now.”
 
If it intends to appeal HMRC must do so within 56 days.

HL advised investors to do nothing yet because of the possibility of an appeal. 

The company said: “If HMRC do not appeal, we will work with them to return the amounts withheld on payments of loyalty bonus to clients. 

“We will also stop deducting the 20% provision from future loyalty bonuses. Clients 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 do appeal, we will wait until the appeal is decided before taking any action. In this case we will continue to deduct a 20% provision from loyalty bonuses.

“Clients should continue to include loyalty bonuses as income on their tax returns. In this case we will write to clients once the result of an appeal is known.