Exploit the differential

INVESTMENT TRUSTS

Despite being a small sub-sector of the investment trust market, zero dividend preference shares have reappeared on the radar, writes F&C's Peter Hewitt

With the top rate of UK income tax hitting 50% in recent times, tax treatment has become an important factor in investment choice. Appetite has been growing for investments that exploit the large differential between income tax and capital gains tax. With CGT currently charged at a flat rate of 18%, there is a 32% point tax gulf for the highest earners between income and capital returns. Against such a backdrop, zero dividend preference shares and other investments (such as the ‘B’ shares of some investment trusts) that pay capital rather than income returns look compelling. As any stude...