TISA reports on unit and share class conversions
TISA’s project to consider the implications of the launch of new unit and share classes is recommending that conversions should only take place on investor request, or as soon thereafter as practical.
A working group, established by TISA’s Wrap & Platforms Advisory Council, was asked to look at tax, standardising industry practice on transfers and conversions, the implications of conversions on equalisation and the impact on existing holders, and to identify what should constitute industry best practice.
Careful consideration was given to restricting conversions to ex-dividend (XD) dates; however the Group felt that this would force investors to stay in higher charge classes for longer than they wished. It would also cause significant administrative and communication issues for advisers. The Group concluded that conversions on investor request should be the standard to be adopted.
Jeffrey Mushens TISA’s technical director said:
“Provided that the appropriate disclosure has been made, managers could require that conversions only take place on an XD date. However this does not seem consistent with the requirement to treat customers fairly, as it would force customers that wished to take advantage of lower charges to sell and reinvest which would incur unnecessary expense.”
TISA’s working group key recommendations are:
Tax
• Conversions between unit/share classes are not a disposal for tax purposes, nor should they give rise to Stamp Duty Reserve Tax (SDRT).
Order
• Transfers should be completed first with the conversion then carried out by the receiving party.
Conversions
• From one class to another should preserve the original groupings.
• Should be used as opposed to switches which will be a disposal for tax purposes, may trigger SDRT, will mean holders will be converted to group 2 units and may penalise investors through any spread or dilution levy.
• Should take place on investor request, or as soon thereafter as reasonably practical.
Fund accounting
• The IMA have issued guidance on requirements for fund accounting for conversions.
Disclosure
• Each transfers and conversions transaction will be shown on client statements; however, if conversion does not take place within a reasonable period, then additional disclosure will be required for the total charges until conversion.
Membership of the group included representatives from Eversheds, PricewaterhouseCoopers, as well as platforms, wraps, fund managers, Transfer Agents and Third Party Administrators and Fund Accountants.
Copies of the report have been sent to the FSA and HMRC, the report is also available on TISA’s website: www.tisa.uk.com
Ends……
For further information, please contact:
Jeffrey Mushens, Technical Director, TISA – Tel: 07939 575093Email: jeffrey.mushens@tisa.uk.com
Issued on behalf of TISA by Cauldron Consulting, contact Anne McMeehan – Tel: 020 3178 7237. Mobile: 07764 184384. Email: anne.mcmeehan@cauldron-consulting.com
Notes for Editors
The Tax Incentivised Savings Association (TISA)
TISA is the premier industry funded body in the UK retail savings and investment industry. By engaging with member firms, government, political parties, regulators and consumer groups TISA’s ultimate goal is always to further consumers’ best interests. It seeks to improve the range, features and quality of savings and investment schemes available whilst encouraging more people to save for their financial security and peace of mind.
Uniquely, TISA is able to articulate the opinions of the whole savings and investments marketplace through its membership comprising over 120 member firms involved in the supply or distribution of products. TISA’s remit extends across the broad spectrum of savings vehicles & services and centralised investment propositions.