Prudential Optimum Return With Profits Fund

atlanticspan

Hi All,
I'd be grateful for advice re Capital Gains Tax on the above bond which I have owned for five years, but would now like to use to buy a Vanguard Passive Fund.
If I cash in the Prudential Product and transfer the full value into the new fund,will I be liable to CGT ??

Many thanks

jem16

atlanticspan wrote: »

Hi All,
I'd be grateful for advice re Capital Gains Tax on the above bond which I have owned for five years, but would now like to use to buy a Vanguard Passive Fund.
If I cash in the Prudential Product and transfer the full value into the new fund,will I be liable to CGT ??

Many thanks

If it's an Investment Bond you have, it won't be liable for CGT but may be liable for income tax depending on your current tax status and the gain in the Bond.

There may also be other charges such as a Market Value Reduction or early encashment which you would need to check out.

dunstonh

There is no CGT on investment bonds. Tax is paid at source (with tapering relief still applied for insurers - so the net rate can actually be quite low in many cases). The gain following a chargeable event (such as full surrender) is added to your income. This means there is no further liability for tax unless the gain takes you into high rate. There is top slicing relief available which can help avoid that from happening for many people.

The style of investment Prudential has is generally low cost and effective. The Vanguard funds are not much cheaper (especially when the platforms offering it have to start charging for it explicitly) but lack the protections that are in place for Pru. Whilst the Pru investment isnt fashionable, it does do a job very well for the level of risk it has. Why are you moving from Pru to Vanguard?

atlanticspan

Thank you for clarifying the CGT situation.
I am considering moving due to the funds exposure to bonds. Also,for the last three years the returns have been falling.
I've just had my latest statement and it is showing a yield of 4.6%
whereas I am achieving better returns from other passive equity investments that I own.

Linton

Your Pru investment is a With Profits Bond. This means that each year you are normally given a bonus. This bonus cannot be taken away from you - the fund will be managed to ensure that annual bonuses paid each year are broadly sustainable. In addition there may be a Terminal Bonus paid when you finally sell up. This can vary up and down over time.

A WP bond is pretty safe. My Pru WP bonds continued to pay over 4% annually throughout the credit crunch. Your passive investments if invested in equities will go up and down significantly over time - expect to see a 30% fall at some time. They are far more volatile than WP bonds.

You are proposing to swap a safe investment for a riskier one in the hope of gaining a better return. Is this what you want to do?

dunstonh

I've just had my latest statement and it is showing a yield of 4.6%

What about the final bonus? You cant just measure it by one bit of the return. You need to look at all bits.

whereas I am achieving better returns from other passive equity investments that I own.

If you are moving up the risk scale then fair enough. If you are comparing a period that includes 2007-2009 then fair enough. If you are looking at just after that then you are not comparing over an adequate period.

I still have a number of these Pru bonds on my books and I just cant justify moving them because they do the job and do it well.

atlanticspan

Linton wrote: »

Your Pru investment is a With Profits Bond. This means that each year you are normally given a bonus. This bonus cannot be taken away from you - the fund will be managed to ensure that annual bonuses paid each year are broadly sustainable. In addition there may be a Terminal Bonus paid when you finally sell up. This can vary up and down over time.

A WP bond is pretty safe. My Pru WP bonds continued to pay over 4% annually throughout the credit crunch. Your passive investments if invested in equities will go up and down significantly over time - expect to see a 30% fall at some time. They are far more volatile than WP bonds.

You are proposing to swap a safe investment for a riskier one in the hope of gaining a better return. Is this what you want to do?

That's about the size of it yes. My IFA even suggested the TER was quite expensive.

atlanticspan

dunstonh wrote: »

What about the final bonus? You cant just measure it by one bit of the return. You need to look at all bits.



If you are moving up the risk scale then fair enough. If you are comparing a period that includes 2007-2009 then fair enough. If you are looking at just after that then you are not comparing over an adequate period.

I still have a number of these Pru bonds on my books and I just cant justify moving them because they do the job and do it well.

Thanks again,food for thought.