Std life MIO

How much money is involved? 5 per year does not seem a lot unless the sum is very small. And when you say 'on top of underlying charges' do you mean 'after charges'? And is the 5 guaranteed? If it's basically an insurance bond that you are buying then the funds may be tax-free to you when you encash them, but on the way they have incurred a level of capital gains tax which reduces what you might have got. You might be better in say a corporate bond fund where you can get around 10% tax free, but they are not secure. How much are you willing to pay for security?

Rob Graham

thanks - so basically ... my endowment is reinvested in my choice from 13 std life funds (eg fixed interest fund, index linked fund, "cautiously managed fund" etc). Std life charge a management fee of 0.75% on value of interest +£5pa peppercorn. It says investment will grow free of income and CGT, and cash in will be tax free. It says "although the benefits paid to you are tax free, the funds you choose to invest in are subject to corporation tax, which is paid by std life at rate applicate to life assurance companies. This tax applies to the income and gains within the fund, and is take into account when calculation the funds unit price"

amount is about £10k ... but if I am to invest I have to notify them before endowment matures which is very soon,

So this IS an insurance bond. Therefore, as they tell you, the funds do not grow tax free albeit there will be no further tax for you to pay when you get the money out. None of the funds that you mention are likely to be guaranteed not to go down, although some of them are actually unlikely ever to.

You say 'Std life charge a management fee of 0.75% on value of interest'. I think you mean 'value of fund'.

0.75% is in the ballpark for fund management charges so they are not fleecing you. So if the fund value is 10K you will be paying 75 a year in charges and - I presume - getting whatever growth there might be on the fund plus 5. Have you checked what the performances of the funds you might choose from (i.e. low risk) have been and are likely to be? Funds of this nature are going to be pretty pedestrian in the current climate. Ask S/L for some performance figures or go to their website, or any other website that provides such figures.

Or don't bother and accept whatever growth you get, which is likely to be pretty well bugger all. Or take the money out and put as much of it into a cash ISA if you haven't already done one this year (there is no tax on these within or outside the fund). If you are married your wife might like to do one as well. Or put it into a corporate bond fund (if you don't mind a bit of risk).

Rob

yes - you're correct

I've already used my isas... As you say the growth in these std life funds is likely to be pretty meager... Do u think it really is tax efficient (the tax saving "grow free of income and CGT, and when cashed in will be tax free" outweighs the corporation tax they pay) and worth taking advantage of ... or should take the money, put it in the best Buiding Soc and invest later.

I realize that I ought to probably run it past an IFA?

thanks again

The tax on insurance funds will be around 20%. The exact amount will vary from insurer to insurer depending on their tax position. If you put this money into a non-ISA unit trust/OEIC corporate bond fund you would pay 20% as well.

You might consider putting the money into a cash park of some sort and investing in a stocks and shares ISA next year when you should be able to get around 10% tax free - you've got nine months to wait

Yes.

Rob