Investors Capital Trust - budget boost for 'B' share

Rodger McNair, manager of Investors Capital Trust (ICT), welcomed Chancellor Alistair Darling's Pre-Budget decision to reduce Capital Gains Tax (CGT) from 40% to 18% from April 2008, saying it would benefit the trust's shareholders, in particular those investing through the trust's B shares.

Investors Capital Trust was launched in February this year with a unique structure, which offers investors the choice of two classes of share – A shares and B shares. Although the share classes have the same net asset value and pay the same level of cash distribution, which currently represents a yield of around 5.5%, the key difference relates to the tax treatment of the cash distributions on each share class. Whilst the cash distributions on the A shares are paid by way of dividends and taxed under the income tax rules, the cash distributions on the B shares are paid as a return of capital and taxed under the Capital Gain Tax regime.

"The changes to the CGT regime are particularly good news for holders of ICT B shares. Investors in the B shares do not have to pay CGT on receipt of their cash distributions and they do not affect an investor's annual CGT allowance. It is only when the B shares are sold that the capital distributions have to be taken into account for CGT purposes and from the 6th of April next year, investors will only incur an 18% tax liability on any gains made.

"It was highlighted by Cazenove in a research note earlier this week that the new rules on CGT resurrect the historic advantage that capital gains used to enjoy compared to income during the 1970's and that this will doubtless give rise to a number of structures which will seek to take advantage of this position. ICT is one step ahead of the game as we believe our dual share structure is currently unique to the marketplace."

McNair added that it was important to remember that if the B shares were held in perpetuity the liability to CGT would fall away completely with the value of the investment ultimately forming part of an investor's estate.

"With the combined Inheritance Tax threshold for couples rising to £600,000, this is a win, win situation," concluded McNair.