Norwich Union GEB

dunstonh

Not a fan of GEBs as most of you know but this one doesnt appear too bad. Before I start, this is not a recommendation or anything of the sort. It just got announced so thought I would put it here for information and discussion.

Where this may interest some is that it is subject to capital gains tax in year of maturity, not income tax. That means that you can have the first £9,600 tax free and the rest above that taxed at 18%. (CGT tax free allowance goes up every year as well by around £400 a year so you can estimate a bit more).

• 100% capital security
• £1000 minimum
• return is 2 times the FTSE100 growth during the 6 year term, capped to a maximum of 72%
• Initial charge is 7.14% but this is built into the pricing of the plan and has no effect on the investment (unless you surrender prior to maturity). So, if you invest say £5000, the calculation will be based on £5000.
• Commission = 3%. So, if you transact on execution only basis and get some of that rebated you get a bit more money. (it cannot be paid into plan, it needs to be rebated if that happens).
• Interest of 3.25% gross p.a. is paid from the point you pay your money until the investment date on 17th November (this bit is subject to income tax).
• Can be placed in an ISA (but a waste of allowance unless you arent using the ISA allowance by other means)

If you invest £5000 and the index goes up by 300 points you will get back £5500 on maturity (not including interest or commission rebate with any of these examples)
If you invest £5000 and FTSE goes up by 72% or more then you will get back £8600.
If if invest £5000 and FTSE drops by any amount then you get back £5000.

If you do hit the 72% cap then the equivalent return is 9.46% p.a. With it being subject to capital gains tax and not income tax, even half that could be attractive to those that do not use their CGT allowance or are higher rate taxpayers. Basic rate taxpayers could be interested as well at least up to the CGT tax free allowance mark. Even above that is just 18% compared to 20% on conventional investments.

There is also a 3 year version of this (with slightly different terms). Both versions are called Norwich Capital Protected Plan 2.

I repeat that this is information and discussion only. Nothing else.