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INVESTMENT TRUST
(Also called Zero Coupon Shares)
A certain type of share issued by an Investment Trust Split Level Trust which receive no income but is repaid at a fixed price at a fixed date in 1 to 12 years time (depending on the trust). Your return is equivalent to a fixed accumulating rate of interest. The return depends on the price you pay (plus commission etc) in relation to the price when the shares are repaid at the redemption date (or when you sell, if you sell before then); it also depends on how much tax you have to pay on your gain. They are more like a stock than a share. There are also Stepped Preference Shares which offer dividends which rise at a pre-determined rate plus a fixed redemption value.
Who can invest Anyone.
How worthwhile Potentially good value mainly for higher rate tax payers if the gain continues to be taxed as a capital gain rather than income. As the investment has no income, it only needs to be disclosed on a tax return when the shares are sold or are redeemed. Taxpayers compare with National Savings Fixed Issue Certificates, Life Insurance Growth Bond, Offshore Sterling Currency Fund. Non-taxpayers, 10% and 20% taxpayers compare with National Savings Capital Bond.
Minimum Around £1,000 because of minimum commission.
Maximum None but some may be in short supply.
Suitable Lump sums.
Money back At the end of the term. 5 days after you sell. Stockbrokers deal every day; managers usually don't. You get the market price if you sell early or a fixed redemption value (although if the trust performs very badly, this may not be paid in full).
Interest None.
Interest paid When the shares are repaid.
Tax Gains on trust shares are liable to capital gains tax but see capital gains tax. It is possible that gains on the shares may be liable to income tax instead of capital gains tax before some of these shares are repaid. Either way no tax is payable until after the shares are repaid (or you sell).
Fees to pay Stamp duty ½% when you buy. When you buy or sell: Stockbrokers' commission: Varies depending on the broker from £15 per transaction on-line to 1.5%. If you buy through the managers, commission nil to 0.2%.
Passbook Share certificate from each investment trust or a statement of ownership from your stockbroker if your shares are held by your stockbroker as nominee. Nominee holdings will increasingly become difficult to avoid under Crest.
Children Shares must be registered in an adult's name but can be designated with a child's name or initials. Possibly a suitable investment for a Trust where the beneficiaries do not need to be paid the income.
Risk Moderate. The investment trust might not have enough money to repay the shares in full - or if you have to sell early, and interest rates have risen since you bought, the price may have fallen.
How to invest Get advice and details of the available trusts and their redemption yields from a specialist stockbroker.
Where from The Association of Investment Trust Companies has a booklet on Zero Dividend Preference Shares. The Association of Private Client Investment Managers has a booklet with the names of specialist stockbrokers. Also check out Trustnet.
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Last updated 29 Jnauray 2002