MPs can demand action in Parliament to overrule the Inland Revenue, but Parliament is now in recess and MPs will not return until 3 June. Moreover, the public offer is due to close on 10 June, Scot Am's general manager for product development, Gavin Stewart, said yesterday.
Scot Am is also seeking an urgent meeting with the Treasury, but in the meantime the Royal Bank of Scotland has been instructed not to process any more applications or cash any more cheques from investors.
Up to 30,000 investors have already applied to enter the Scot Am trust, which ingeniously allows investors to put up to pounds 50,000 into a Personal Equity Plan in a single year, and to obtain tax-free income on the full amount, by setting up a split-level trust.
Only pounds 6,000 will be invested in income shares in the trust and pounds 44,000 will be invested in warrants which can be converted into capital shares. Only the income shares are treated as part of the PEP but they receive all the dividend income free of tax from the pounds 50,000, which will be fully invested in leading UK equities.
After seven years the capital shares will be entitled to pounds 50,000 or pounds 44,000 indexed to the retail price index, whichever is the higher, and will incur no capital gains tax at all if inflation is less than 1.85 per cent.
The trust was announced last month and was immediately seen as a deliberate attempt to outflank the PEP rules, which limit the amount any investor can put into a PEP to pounds 6,000 in any one financial year. But Scot Am's managers were adamant at the time that their proposal had been put to the Inland Revenue as long ago as January and had aroused no adverse comment.
Applications have been coming in since 1 May and are on target to reach the target of pounds 240m by June 10, Scot Am said yesterday.
If Scot Am's protest against the Revenue's belated intervention is successful it may be possible to extend the offer period.
But the Revenue's announcement may well persuade many more applicants to delay posting their applications until the situation is clarified.
If the Revenue's decision cannot be overturned, Scot Am has also promised to return all the funds so far invested. But many of the investors will already have taken decisions to liquidate other investments ready to subscribe.Reuse content