Multi-million-pound tax raid costing investment trust customers £100 a year

interactive investor makes a series of calls in its HMRC submission ahead of the Spring Statement.

• interactive investor supports AIC calls to stamp out stamp duty on investment trusts
• investment platform calls for simplification of ‘bafflingly complicated’ ISA landscape

interactive investor, the UK’s second-largest investment platform for private investors, has made a series of calls in its HMRC submission ahead of the Spring Statement.

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The investment platform is supporting the Association of Investment Companies (AIC) campaign to stamp out stamp duty on investment trusts.  

interactive investor calculates that in 2022, customers buying investment trusts paid an average of £102 each in government stamp duty. That is unfair and anti-competitive, given private investors buying ETFs and funds do not pay stamp duty.

Over the past three years, interactive investor estimates that its customers have collectively paid out a staggering £30 million in stamp duty on investment trust buys. 

interactive investoris also calling for ISA simplification. There are too many ISAs, and what started life as a simple idea has grown progressively more complicated. This is a recurring problem with the tax treatment of savings plans. 

The UK’s pension system illustrates what can happen over time; a series of individual policy decisions, each of them logical in their own right, accumulate into a system which, when seen as a whole, can become bafflingly complicated for individuals to navigate. Our ISAs are in danger of heading down the same road.

On investment trust stamp duty

Currently, investors trading in UK-domiciled investment trusts have to pay 0.5% stamp duty to the government on every buy they place. In contrast, people investing in funds or exchange-traded products pay no stamp duty.

This is an unfair tax which unfairly penalises investment trust investors. It is also a double tax, because shares purchased as an asset within an investment trust portfolio have stamp duty paid on them by the fund manager.

Richard Wilson, CEO, interactive investor, says: “Funds and investment trusts play an equally vital role in helping people build long-term financial resilience. We wouldn’t dream of treating them differently - we charge the same for both.

“It’s time for the government to level the playing field and recognise that, like funds, investment trusts are a thriving part of the collective investment universe. They have been powering ISA and pension portfolios for generations. 

“Our customers paid out an average of £102 each last year in stamp duty on investment trusts. Over the past three years, they have collectively paid out £30 million. That’s money that should have stayed in their pockets.

“At a time when the government is increasingly focused on value for money, and when Consumer Duty will put value for money under the spotlight more than ever, it’s time the government practiced what it preached and treat investment trust investors fairly.”

Kyle Caldwell, Collectives Editor, interactive investor, adds: “Investment trusts are savings vehicles that have been around since the Victorian era. They have some bells and whistles that differentiates them from funds, but they are providing investors with the same thing in being a type of pooled or collective investment. 

“However, for too long there’s not been a level playing field due to stamp duty continuing to be levied on the purchase of investment trusts. 

“Regardless of how you choose to invest – whether through funds, investment trusts or exchanged-traded products – a certain desired level of investment return over a specific time period cannot be guaranteed in advance. But investors can control costs, and are increasingly cost-conscious. While 0.5% doesn’t sound like much in percentage terms, it adds up. I see no reason why investment trust investors are penalised over funds.”

Other points made in ii’s submission

In addition to writing to HMRC about stamp duty on investment trusts, interactive investor has also said that it believes the ISA regime needs simplification. 

interactive investor believes that various governments have stretched the ISA brand too far, which results in what is likely to be a confusing picture for savers.

The platform believes that simplification would be welcome, while preserving the integrity of traditional equity and cash ISAs. We also think there is a financial education campaign to be done around ISAs – too many people think they are a product in themselves rather than just being a tax wrapper. 

Alice Guy, Personal Finance Editor, interactive investor, says: “The more investment wrappers placed in front of potential savers, the fewer of them will actually benefit from saving and investing for their future. For example, a 30-year-old self employed basic-rate taxpayer who wishes to save for the future and may not yet know exactly what those future savings will be used for, must decide between five different ISA wrappers, from straightforward equity and cash ISAs, through to Help to Buy, Lifetime and Innovative Finance ISAs, before they even decide the specific investment they want to put in their savings arrangement.

“We ask the government to consider simplifying the choices of ISA available. There is no consumer benefit to having multiple ISAs. We recommend consolidating the existing ISA choices to Equity ISAs, Junior ISAs and Cash ISAs.”

Pension system

Alice Guy continues: “We need to have a pension system which can be flexible enough to adapt to changing needs  and circumstances. We should not penalise people who want to return to the workplace having previously retired. The complex pensions rules are off-putting and punish older workers who want to return to the workplace.

“The current money purchase annual allowance rules mean that someone who retires early and then decides to return to the workplace could have their pension contributions capped at £4,000 per year. This makes it difficult for them to save enough for a comfortable retirement.”

interactive investor also thinks it is unfair that customers can’t hold currency other than sterling in their ISA accounts (in contrast, they can hold multiple currencies in their trading account and SIPP). This adds cost for those customers trading in international markets (who have to convert for every transaction) and also limits customers’ ability to take a position to reflect the strength of one world economy versus another.