Capital Investment Bonds and CGT

CGT is one of the taxes paid by the fund to the Revenue. Therefore you don't have to pay it directly. However, the fund's liability to this tax (and income tax) effectively reduces its performance. OTOH, you get the growth with no more tax to pay - except, possibly, higher rate income tax.

Rob Graham

I'm confused, I'm trying to compare standalone Unit Trust investments (NU Property & Global Property) with the same UTs in a CIB.

So the UTs pay CGT internally on the profits from their investments ? Does the individual pay CGT on the profits upon withdrawal from either the UTs or CIB ?

I don't really understand CIBs and I'm struggling to see the point of CIBs on a £60,000 investment for 4 years.

Daytona

I'm confused, I'm trying to compare standalone Unit Trust investments (NU Property & Global Property) with the same UTs in a CIB.

So the UTs pay CGT internally on the profits from their investments ? Does the individual pay CGT on the profits upon withdrawal from either the UTs or CIB ?

I don't really understand CIBs and I'm struggling to see the point of CIBs on a 60,000 investment for 4 years.

Daytona

U/Ts don't pay any CGT within the fund, CIBs do. When you encash a U/T you will be subject to CGT in the same way as if you had encashed shares or sold a valuable picture. When you encash a CIB there will be no such liability. It will have been taken care of by a regular payment by the insurer to the Revenue. So, if you make a gain on a U/T which would not have been chargeable (i.e. below the taxfree limit) you will not pay anything. But with a CIB you are paying a bit whether you would have been liable or not.

With the CIB the payment takes care of basic rate income tax as well, but not higher rate.

So if you make the comparison you've mentioned, the U/T will grow faster than the CIB, but you may have to pay CGT on it, depending on the exact situation when you make the encashment. Also, there is no income tax chargeable on a U/T encashment.

Which is best for you depends on the above factors, and others as well, which are more complicated.

Rob

I should add that you don't buy a U/T within a CIB. You buy it as a U/T. A CIB uses the life funds of the provider. The investment of the 2 funds might well be in exactly the same places but a U/T and a CIB are different animals, each with its own rules.

Rob

Thanks for the info. Rob.

I also found this thread which details the situation -

0098 It appears to indicate that every year CGT is levied on the difference in value compared with the previous year, at 20%. This is payable in equal instalments over 7 years.

Consequently, the key facts documents are misleading.

Daytona (keywords capital investment bond bonds income capital gains tax cgt cib)