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AITC in plea for open-ended tax equality

The Association of Investment Trusts is lobbying the Treasury to offer investment trusts the same tax breaks on bond investments that it does for open-ended funds to enable them to compete on an equal basis.

Investment trusts pay 30 per cent tax on bond income compared with 20 per cent for open-ended funds. If a unit trust or Oeic has more than 60 per cent of its assets in fixed interest and can claim bond fund status, the interest is tax-deductible so the fund pays little or no corporation tax. Investment trusts are not eligible for bond fund status.

The AITC is pushing the Treasury to change this in the pre-Budget Report and include it in the next Finance Bill.

Director general Daniel Godfrey says only 2 per cent of investment trust assets are in bonds compared with 14 per cent of open-ended fund assets because of the tax disadvantage, meaning investment trust investors are missing out on balanced closed-ended investments.

He adds: “Ironically, when investment trusts were first launched over 130 years ago their role was to give investors access to a diversified portfolio of bonds – a far cry from the position that we see today.”

Fidelity head of investment trusts Stephen Westwood says: “It does seem illogical that there are specific provisions to allow open-ended bond funds to operate in a fiscally neutral environment while an investment trust with a significant proportion of its assets invested in bonds would suffer an irrecoverable tax charge.”


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