AN INVESTMENT trust with a difference is proving a success, despite turbulent markets.
F&C Investments' Investors Capital Trust, managed in Edinburgh by Rodger McNair, reported impressive results for the period from 15 January to 30 September 2007.
Its
net asset value (NAV) per share gave a total return of 6 per cent and it had a distribution yield of 5.6 per cent.
The trust has total assets of £170 million and is the successor of the original Investors Capital Trust, which was rolled over in March. At that time, it was split into two classes of asset shares: "A" and "B".
McNair explained: "A and B shares are identical except for one aspect - the way their distributions are treated.
"For an A shareholder, the distribution is paid as a normal dividend, like any other ordinary share. The B share pays the same amount at the same time, but it's treated as a return of capital for the individual's tax purposes.
"The capital gains tax (CGT) treatment applies to B share holders, whereas income tax applies to A share holders."
McNair gives the example of a higher-rate taxpayer who has invested £100,000 into the B shares. At the moment, with B share distribution the yield is around 5.5 per cent, so they would receive £5,500 annually in four quarterly dividends.
Because the B shares pay a distribution of capital, the investor does not pay any tax at point of receipt and it does not have to be put on their tax return. Therefore, it does not affect their annual CGT allowance.
McNair added: "The individual only has to consider the tax implications when they sell their investments. If an investor were to hold the B shares for a period, they would only pay CGT on the difference between the market value of the investment and the adjusted 'book value' when they sell.
"Another aspect that is quite interesting is if you buy the B shares and take the view that you are going to hold on to them for life. On death, any liability for CGT disappears and value of the investment falls within their estate. They have had the distribution without paying tax.
"Going back to the example of the higher rate taxpayer, they would receive £1,370 more each year than if they had been taking income in the form of ordinary dividends."
The trust's investment portfolio is split into two parts. About 80 per cent is invested in UK equities and the rest is described as a higher-yield portfolio. This is currently a fixed-interest combination of corporate bonds and gilts.
? The Investors Capital Trust is
PEP,
ISA and savings-plan compatible.
