Eurolife, one of the market leaders in high-inc ome bonds, has produced a highly innovative plan called Income or Growth Plan II. It is fairly similar to the highly successful Scottish Widows plan linked to leading shares.
It offers the highest level of income for a three-year plan for a long time at 11.25 per cent a year, tax-free through an Isa or a Pep transfer. Due to the Dublin structure, direct shares will only attract tax at 10 per cent for standard-rate taxpayers and 32.5 per cent for higher-rate taxpayers, which nets down to 10.1 per cent and 7.6 per cent respectively, equivalent to 12.65 per cent gross on building society/ bank deposits.
Isa investors can invest for two years so a married couple can invest up to £28,000 tax-free altogether. The growth alternative is 36 per cent. This means those who wish to use up their capital gains tax allowance can invest £20,000 and receive £7,200 after three years tax-free. The downside risk is low. The capital value is linked to the 20 stocks selected from the FTSE 100 Index. The stocks include such well-known names as Barclays, British Telecom, Glaxo Wellcome, Prudential, Shell and Tesco.
Provided the average fall of the five lowest-performing shares is not more than 10 per cent, the capital will be returned in full. If, how ever, the average is below 10 per cent, there will be a capital loss of 1.11 per cent for each 1 per cent below 90 per cent. For example, if the average fall is 16 per cent, there will be a reduction in return of 6.66 per cent.
Over the past seven years, the major bank backing this plan has calculated there would have been 100 per cent capital return in all cases. The offer opens on January 15 and closes March 9. Pep transfers, however, must be applied for by February 26.