Bonds hit by CGT changes

The insurance bond market could take a severe battering because the
Chancellor has left investors out in the cold while he indulges small businesses
with CGT changes.

Industry representatives warned that bond holders could cash in their stakes
in favour of unit trusts.

Currently, unit trusts investors occupying the highest tax band pay 40% on
profits, but the CGT changes mean that they will enjoy a lighter tax burden.

Speaking to the
, Jonathan French, spokesman for the Association of British Insurers
said: ‘The proposals as they stand mean that alternatives to bonds are taxed
more lightly and we think the playing field is no longer level.’

Those with insurance bonds pay 20% tax on their investments, which can
include shares, property and with-profits funds. But when a higher rate tax
payer cashes in these bonds, they are charged a further 20% on any profit,
adding up to a total of 40%.

French added: ‘This means many bond investors might be able to cut their tax
bill on future profits if they switch to funds such as unit trusts.’

Further reading:

bodies unconvinced by CGT relief


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