Industry figures have expressed concerns about the news that rebates to investors are set to be taxed from April.
Responding to the HMRC announcement that all rebates to investors are to be taxed from April 2013, David Thompson, MD of AXA Wealth's Elevate business, said: "This latest tax on rebates is bad news for investors and will cause increased complexity for advisers. The HMRC plans to tax investor rebates are another sign that the industry should move away from this form of pricing arrangement. While supporting the ban on unit rebates we have argued that cash rebates should remain and are disappointed the industry has lost this argument.

"However, this announcement does support the shift to clean share classes. The industry should now grasp this opportunity and move to a fully transparent model. The RDR was designed to make things easy. We should now deliver on this objective and create a fully transparent model that will provide clarity for advisers and their clients.

"There are now over 1,600 clean share classes available for advisers via the Elevate platform, which puts us in a very competitive position given these changes. We expect the popularity of this share class to increase dramatically as a result of this announcement as advisers can invest with confidence that new money will not be taxed. Clean share classes also provide the cleanness and transparency that the customer and the regulator require.

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"With the introduction of the tax from April this year there is a real need for clear and concise communication from HMRC for advisers. This announcement does raise a number of questions that will need to be addressed in the next few days and we will be working closely with advisers to help them understand the impact and how best to implement the changes within their business."

AXA is a corporate member of the IFP.

Patrick Mill, managing director of Alliance Trust Savings, said: "Today's announcement from HMRC that rebates will be taxed at a client's marginal rate of income tax is surely the final nail in the coffin for unit rebates.

"Applying unit rebates from an industry perspective would be highly complex to both administer and to explain to customers. Taxation of rebates will apply to funds held out with a tax sheltered wrapper, such as a Sipp or Isa. So a higher rate tax payer could lose almost half of the value of the rebate in tax.

"Ahead of the implementation of the RDR, Alliance Trust Savings decided last year to launch a range of clean share class funds, anticipating transparency would become increasingly important to consumers. Clean share class funds do not pay a rebate but do offer a lower AMC. For example, a rebate paying fund may have had an AMC of 1.50% and a rebate of 0.75% but the clean version is now typically available at 0.75%.

"Crucially these funds will not incur any tax charge as a result of today's announcement; therefore consumers would be wise to make sure that they are investing via a provider who offers funds on a clean share class basis. Alliance Trust Savings has adopted this approach for new investments ahead of most of the market for both advised and direct clients as we felt strongly that clean share class funds were the way forward to deliver fully transparent pricing. Providers who have yet to adopt clean share class funds may face some difficult questions from advisers and clients keen to avoid an unexpected tax charge."

Alliance Trust Savings is a provider of Sipps, Isa and Sharedealing Accounts.