Investment Tax

INVESTOR NEED

SINGLE PREMIUM BOND

COLLECTIVES

Wholly cash funds

YES

YES

No infill of tax returns (in respect of this investment) during course of investment (i.e. pre realisation)

YES

NO

Unless completely non- income producing

Ability to extract funds during the course of the investment free of tax at that time

YES

5% available with no immediate tax at that time. Withdrawals in excess of this will be potentially subject to higher rate tax less 20% internal tax (UK bonds) or subject to 10%, basic and (if relevant) higher rate tax in respect of offshore bonds. Special rules if bond subject to offshore trust.

YES

By using CGT annual exemption - also, taper relief operates to reduce the chargeable gains before applying the annual exemption.

Ability for non-taxpayers to avoid tax altogether up to available personal allowances and/or annual CGT exemption

NO

Under offshore bond only up to unused personal allowance. No scope to use annual CGT exemption. There may also be non- reclaimable w/h tax.

UK bonds - taxed internally at 20% with no reclaim possible.

YES

Can use any unused personal allowance for income (distributed or accumulated). No reclaim possible in respect of 10% tax credit on UK dividends.

Can use CGT annual exemption for capital gains.

Taper relief may operate to reduce the gain, possibly down to or below the annual CGT exemption.

Ability to pay less than the appropriate highest rate of tax for the particular investor on final encashment

YES

But only under UK bond. Max tax is only 18% (20% from 2004/05) of the net gain making overall tax usually less than 40% - for example it would be 34.4% (37% from 2004/05) if tax on income and gains generated by the life fund were suffered at an average rate of 20%.

YES

By using taper relief/annual CGT exemption

Maximum taper relief can extend the annual exemption and/or reduce tax rate for higher rate taxpayers to 24% on capital gains (12% for basic rate taxpayers).

Ability for investor to switch underlying funds without triggering a tax charge

YES

NO

Only by "internal investment management" (e.g. in a fund of funds) and no disposal of units/shares takes place by the investor. Where the investor has shares or units in sub-funds of an ´umbrella´ fund then in most cases disposals of those shares or units or switching from one to another will trigger a disposal for CGT.

Ability to hold/transfer into trust say for IHT planning

YES

Care gains assessed on UK resident settlor and, in tax years beginning after that in which the settlor dies, on UK resident trustees. Possible deferment for o/s trustees but care as any amounts received subsequently by UK beneficiaries will be subject to tax as Case VI income under s740 to the extent of past gains not assessed on settlor - no basic rate credit for UK bond gains.

YES

Care: income tax/CGT/self assessment issues for trustees and possibly settlor/ beneficiaries. Particular complications can arise for the trustees of interest in possession trusts where income is not distributed e.g. where the units owned are accumulation units.

Ability to reduce gains by reference to a period of non-residence

YES

Only if offshore bond.

NO

But "pre-return" re-basing of gains possible.

Ability to use annual CGT exemption

NO

YES

Ability to use taper relief

NO

YES 

Ability for investor to use indexation relief

NO

For UK bonds only life office entitled to indexation - means that less internal tax is paid or reserved for.

YES

Available for gains up to 5.4.98 only.

Fund access

Restricted in an onshore bond.

Full access to pure funds.

Can trustees of existing trusts invest in these investments i.e. in a bond or mutual fund?

YES

YES

Can a company invest?

YES

Tax detrimental if bond a UK bond

YES

But no annual CGT exemption, and no taper relief available. Currently indexation will still apply.

Ability to encash free of UK tax when non-UK resident

YES

If not resident in the UK at any time during the tax year of encashment -ESC - B53.

YES

5 year "non-resident" test.

Ability for investor to offset other capital losses against taxable gains

NO

YES

All capital gains "wiped out" on death of investor

NO

Death of investor may trigger chargeable event. This could be deferred if other lives assured survive the investor.

YES

Revaluation of mutual fund on death. No CGT due.