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Investment bonds gain in trust rethink

The Government&#39s move to modernise the tax system for trusts has increased the attractiveness of offshore and onshore bonds, says Skandia marketing development manager Colin Jelley.

Measures to simplify the trust tax system were ann-ounced in the Budget, with most changes set to come into effect on April 6, 2005.

As announced in the pre-Budget report, the trust tax rate is to rise from 34 per cent to 40 per cent and the dividend rate will rise from 25 per cent to 32.5 per cent.

Jelley says the modernisation increases the appeal of investment bonds as they are now put on an even better footing compared with mutual funds. Under the previous regime, bonds could be taxed at up to 40 per cent if the settlor paid the higher tax rate while mutual funds were at 34 per cent.

Jelley says: “By making the rates the same, it makes bonds look a lot more attractive. If you compare bonds with mutual funds, every time you switch in a mut-ual fund, you pay capital gains tax. If you were to have put this money in offshore bonds, you can switch without incurring a tax liability and any income that arises can roll up inside the fund and the tax liability is deferred.”


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