THE £55 billion investment trust industry is threatening to take Customs and Excise to court over the imposition of VAT on management fees.

The Association of Investment Trust Companies said yesterday that it had launched a legal case jointly with the JP Morgan Fleming Claverhouse trust in a move to challenge the tax.

Daniel Godfrey, director general of the AITC, said that investment trust shareholders were penalised because they were not granted the same VAT exemption enjoyed by holders of unit trusts or open-ended investment companies.

Mr Godfrey claimed that the discrimination cost shareholders about £30 million each year because of the Government’s interpretation of a European Union VAT directive. He said he preferred a political solution, but ministers’ lack of action meant the association had no choice but to pursue a remedy through the courts.

Ron Sandler, the former chief of the Lloyd’s of London insurance market, identified the discrimination in his review of retail savings and recommended that the Government “level the playing field”. But a consultation process had come to nothing.

Robert Walther, chairman of the £5 million Fleming Claverhouse investment trust, said: “VAT on management fees costs our shareholders in excess of £300,000 a year, a cost that the company would not have to bear if it were a unit trust or Oeic. This is undoubtedly unfair.”

Under the sixth VAT directive, “special investment funds” are entitled to an exemption, but the UK Government has decided that investment trusts do not qualify because they are listed on the London market.