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Clerical suspends portfolio bond pending legislation

Clerical Medical is suspending its highly personalised portfolio bond following the Chancellor&#39s pledge to close offshore tax loopholes.

Draft anti-avoidance legislation is due to be published next month and Clerical Med ical believes that its bonds will be hit with a triple tax whammy.

Highly personalised portfolio bonds are offshore investment vehicles which have an insurance wrapper.

The House of Lords ruled in 1995 that they are legitimate savings vehicles but the Inland Revenue still believes they are used primarily for tax avoidance.

From April next year, bondholders will have to pay 15 per cent tax on the maturity of policies as well as any capital gains tax.

Clerical Medical also expects bondholders to have to pay 15 per cent tax on chargeable events such as transactions within the policy.

According to the life office, the new rules will impose a £196,055 tax bill on a £100,000 bond which grows to £351,787 over 10 years, assuming 9 per cent growth and a bid/offer spread of 5 per cent.

Clerical Medical is considering offering existing bondholders a switch to a different product or a transfer into pooled funds.

Development manager Bob Golding says: "The bonds are being hit punitively. The highly personalised bond is likely to disappear because, according to our figures, there will be a treble tax charge."

Clerical has also suspended its Family Wealth Trust inheritance tax plan in anticipation of plans to axe potentially exempt transfers.

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