Tax changes for large investors
YOUR MONEY GILTS
Saturday 27 May 1995
Gilts are bonds which the Government issues to fund its borrowing. They give a fixed income to investors every year and, if they have a redemption date, the return of the nominal capital at the end of the period.
Like shares, gilts can be bought and sold through stockbrokers, high street banks, building societies and financial advisers. During their life, their value fluctuates depending on rises and falls in interest rates and inflation.
They can be suitable for investors who want a fixed income and do not need their money back quickly. They may also suit those who want to gamble that interest rates may fall - gilt prices then rise, leading to a capital gain.
This week's Treasury consultation document proposes that investors holding more than pounds 20,000 of gilts and other bonds should have their profits - both in interest and capital gains - taxed as income.
However, they will be allowed to offset capital losses against tax. Capital gains on gilts are currently tax-free. Only the interest is taxed.
Individuals holding gilts would be taxed on the interest received on a year-by-year basis, with profits and losses made on disposal taken into account when working out total income.
Individuals with less than pounds 20,000 will be exempt. While at least 90 per cent of individual gilt holders will escape the tax drag, corporate holders such as insurance companies will be hit.
The Treasury hopes the tax changes will allow development of new gilt products. A potential investment will be gilt "strips", where the interest coupon is separated from the principle.
Pension funds will be among those able to take advantage of the change, by matching liabilities with assets of a specific duration.
But there will be losers, as the Independent revealed last week. These could include many investors who have poured almost pounds 1bn into a range of guaranteed income bonds (GIBs) sold by insurance companies.
Their guarantees of high income and growth, paid net of tax at the basic rate, were underpinned by gilt options. But the companies' assumption of tax-free gains have been knocked by the Treasury's proposals.
These GIBs will in future be taxable, unless insurers who sold them execute a smart about-turn, ignore their small print and deliver the "guarantees" they gave so freely when marketing their products.
Guaranteed products, page 21
- 1 Malaysian cyclist could face disciplinary action after 'Save Gaza' gloves protest
- 2 Is Gideon Levy the most hated man in Israel or just the most heroic?
- 3 Fifty Shades of Grey trailer provokes moral outrage from US parenting groups
- 4 McDonald’s removes chicken nuggets from the menu in Hong Kong amid major food scare
- 5 Students offered grants if they tweet pro-Israeli propaganda
Israel-Gaza conflict: Israeli targeting policy under scrutiny after shellfire hits a mother and child, a school full of refugees and a doctor’s home
MH17 crash: Investigators discover more human remains and 'huge section of plane'
Students offered grants if they tweet pro-Israeli propaganda
McDonald’s removes chicken nuggets from the menu in Hong Kong amid major food scare
Satellite full of sexually experimental geckos adrift in space, Russia loses control of mission
The 'scroungers’ fight back: The welfare claimants battling to alter stereotypes
Arizona execution lasts two hours as killer Joseph Wood left 'snorting and gasping' for air
Malaysia Airlines MH17 crash: Ukrainian military jet was flying close to passenger plane before it was shot down, says Russian officer
Malaysia Airlines MH17 crash: Massive rise in sale of British arms to Russia
Malaysia Airlines MH17 crash: victims’ bodies bundled in black bags and loaded onto trains
John Barrowman praised for Commonwealth Games opening ceremony gay kiss
iJobs Money & Business
£600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...
£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...
£280 - £300 per day + competitive: Orgtel: Test Analyst, Edinburgh, Credit Ris...
£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...