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Do I need to declare my loyalty bonus on my tax return?

Yes. If you pay income tax above the basic rate, you will need to declare loyalty bonuses paid in the Fund & Share Account on your tax return. Loyalty bonuses paid in the ISA and SIPP do not need to be declared.

If you are a non-taxpayer or basic rate taxpayer, and you don’t need to complete a tax return, then you don’t need to take any action.

In March 2013 HMRC announced that it believed loyalty bonuses received on funds held in nominee accounts, such as our Fund & Share Account, should be subject to income tax.

Loyalty bonuses received in an ISA or SIPP are not affected, nor are those received in the Fund & Share Account before 6 April 2013. Discounts on initial charges are also unaffected.

HMRC published details of their position on their website. We believe HMRC is incorrect and we are challenging their interpretation.

While we pursue our disagreement with HMRC we are paying loyalty bonuses within the HL Fund & Share Account net of an amount equivalent to the basic rate tax and paying this over to HMRC.

If we are successful in our challenge HMRC will return this withheld money to our clients. If we are unsuccessful HMRC will retain the money.

Paying over the amount that HMRC believes is due in tax in advance of the outcome of our challenge will save our clients facing an unexpected bill in the future if our challenge proves unsuccessful. It also means that clients who need to complete a tax return can do so in accordance with HMRC guidance and treat the withheld amount as tax already paid to HMRC.

If you are completing a return you will find all the information you need in the annual tax certificate which will be included with your investment report.

Remember, loyalty bonuses received on funds held in the HL ISA or SIPP are exempt from tax and should therefore not be included in your tax return. However, HMRC has advised that they believe all loyalty bonuses you have received for funds held in the HL Fund & Share Account since the 2013/14 tax year (including any amounts that have been withheld by Hargreaves Lansdown on account of tax and not paid to you) should be shown in the ‘Other UK income not shown on supplementary pages’ section of the main tax return.

On your tax certificate, beneath the table, you will find a statement which tells you the full amount of all loyalty bonuses you have received for funds held in the Fund & Share Account and the amount withheld in respect of the disputed tax. We have withheld at a rate of 20%, which is equivalent to the basic rate of tax.

Within the ‘Other UK income not shown on supplementary pages’ section, you should include the full amount of loyalty bonuses received in box 17 entitled ‘Other taxable income – before expenses and tax taken off” and the amount withheld in respect of the tax in box 19 entitled ‘Any tax taken off box 17’. In box 21 entitled ‘Description of income in boxes 17 and 20’ you should write “Annual payment on funds held in a nominee account”. There is no need to fill in boxes 18 and 20.

For taxpayers who receive a short tax return the income should be shown at box 7.1 and any tax that has been deducted at box 7.2.

If HMRC’s view is shown to be correct then, provided that you have followed HMRC’s guidance as indicated here, and paid any additional tax you owe because you are a higher or additional rate taxpayer, then no further action will be needed by you.

If we are successful in our challenge then HMRC will return any money withheld to clients, and clients who have already completed a tax return including the loyalty bonuses will be able to amend their return and seek repayment of any higher rate tax that has already been paid to HMRC.

We will write to you with further information on how to do this when we know whether our challenge has been successful, but please remember that challenges such as this can take some time to resolve.

N.B. Loyalty bonuses received by overseas investors, companies and charities are not required to be paid with the deduction of tax. Therefore, if you are an overseas investor, or you represent a company or charity please let us know if you would like your loyalty bonuses paid without the deduction of an amount equivalent to the basic rate tax.

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