Distribution funds -- good value in an ISA?

From April next year it will no longer be possible to claim 10% dividend credit for shares held in an ISA.

The weekend papers seem to disagree on whether distribution funds (with a 60% bond/40% share split) are tax efficient in an ISA or not.

-- The FT (Saturday 22nd November, page M28) says "Claims that distribution funds will offer tax advantages over equity-only funds are wrong" (written by Pauline Skypala).

-- The Independent on Sunday (23rd November, page 11 in the Money section) says "But ISAs where at least 60 per cent of the fund is invested in bonds will be eligible for a 20 per cent tax credit" (written by Sam Dunn).

Who is right? I would like to believe the IoS, but suspect the FT is more reliable in their financial reporting.

Melvin Anderson.

Reply to
Melvin.Anderson
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If the distributions come with a tax credit of 10%, then it will not be recoverable. If, on the other hand, the distributions are considered to be interest, then tax at 20% is deducted from the gross interest and is recoverable.

The IoS is mixing up the ISA wrapper with what it contains. Only the interest from funds which are determined to be paying interest will have tax at 20% reclaimable. If an ISA contains both bond and equity funds, it will not be possible to reclaim the tax credit from the equity fund distributions, regardless of the mix.

The IoS may well be correct in interpreting the IR's criterion for adjudging a distribution from a given fund to be a payment of interest.

Reply to
Terry Harper

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