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Julian Gibbs

Very few investors are taking advantage of their capital gains tax allowance.

Those investors lucky enough to have invested early in technology funds can, of course, sell sufficient units each year to use up at least part of their allowance but the majority of investors do not wish to put their money in such a high-risk area.

The only sensible low-risk way of using the CGT allowance is through an investment in the zero-dividend preference shares of split-level investment trusts.

Until now, Exeter and Investec Guinness Flight have had the field to themselves. The Exeter fund has shown returns of 7.4 per cent a year compound after all charges. Investors could invest £100,000 and take £7,200 a year tax-free provided there are no other capital gains.

Aberdeen, which is a specialist in managing split-level investment trusts, has now entered the fray with its progressive growth unit trust and is forecasting returns of 7.2 per cent after all charges. It points out, quite rightly, that zeros are an effective way to save for known future costs such as school fees, university fees and when planning for retirement.

Zeros are one of the safest investments around in that they have a call over all the other shares in the investment trust before they fail to pay out. Since zeros were invented around 13 years ago, there has been no single zero which has failed to be repaid in full.

They are certainly an excellent product for the elderly who do not wish to take risks with their money and who want to take automatic tax-free withdrawals within the capital gains tax allowance.

I am in the process of selling my house and plan to move into rented accommodation for up to three years before hopefully purchasing the property of my dreams. I am reluctant to continue paying premiums to my endowment for life and critical-illness insurance while without a mortgage, other debts or family and feel that any encashment value could be better invested elsewhere. Recent coverage and criticism of endowments has made me nervous of them and any future mortgage would be on a repayment basis.


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