Investment bond taxation

jem16

EdInvestor wrote: »

Seems to confirm the FSA view - the taxes in your bond add around 1% or so on top of existing charges outside the bond.

Do you have a direct link to those RIY figures BTW?

Sorry Ed I may have misled you by getting the terminology wrong. I did say I wasn't thinking straight in the last few days. I should have been subtracting those figures from 6% to get the RIY.

I'll begin again.

JPMorgan Natural Resources has charges and expenses which bring the 6% return down to 3.9% so RIY is 2.1%

Artemis High Income - 3.79% - RIY 2.21
Invesco Perpetual High Income - 4.01% - RIY 1.99%
Neptune Income - 3.89% - RIY - RIY 2.11%

Now I realise that these figures do not include H-L's discounts so that would bring the above down a bit. (around 0.1% to 0.33%)

My bond - 4.8% - RIY 1.2%. So even allowing for the taxation of somewhere between 0.4% and 0.8% it still compares favourably, especially as it includes advice and H-L's are execution only. Plus as a higher rate taxpayer I do not have the extra tax on dividends that I would have outwith the bond.

Like for like the RIY on the bond would be around 1.5% compared with 1.7% on unit trusts.

EdInvestor

jem16 wrote: »

Sorry Ed I may have misled you by getting the terminology wrong. I did say I wasn't thinking straight in the last few days. I should have been subtracting those figures from 6% to get the RIY.

Ah, that explains it, I thought those figures seemed very high.

What we're trying to do here is compare the additional reduction in yield due to the tax inside the bond compared with holding the same funds outside the bond (eg in an ISA or directly).

Your comparison doesn't really seem to take us much further as they are distorted by differences in fund and advice charges.

jem16

EdInvestor wrote: »

What we're trying to do here is compare the additional reduction in yield due to the tax inside the bond compared with holding the same funds outside the bond (eg in an ISA or directly).

Dunstonh stated that in his first post.

Your comparison doesn't really seem to take us much further as they are distorted by differences in fund and advice charges.

What is does show is that you can't just take the RIY due to tax in isolation.

The initial allocation and reduced commission lowers the charges of the bond to such an extent that even taking into consideration the extra RIY of tax, the bond can still have an RIY which is lower than the same funds outside the bond.

EdInvestor

Now I realise that these figures do not include H-L's discounts so that would bring the above down a bit. (around 0.1% to 0.33%)

Perhaps you could post the link(s) to the RIY figures you quote so we could check.

jem16

I don't have a web link Ed. The figures were from one of their investment guides given to me by my brother. As you know I leave my investing to my adviser.

I doubt there would be much point in comparing one or two funds anyway. It's going to all depend on the mix of funds, the amount invested and the specific circumstances of the investor as to what would be best.

In some cases funds outside a bond will be better and sometimes inside the bond will be better.