Corporate investment query

benjaminfabibenjaminfabi Moderator
edited March 2017 in Technical stuff
Hi,

We are dealing with a client who has established an investment company and wishes to invest part of the capital within it for the long term. 

It isn't an area that we deal with regularly and I'm interested in listening to anyone who can tell me the relative pros and cons of the usual investments that we'd consider, namely bonds v collectives, in this particular scenario. Also, what else might you consider, and why?

Thanks
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  • Hi Benjamin, 

    I'm not an expert on this either (far from it) but a quick brain dump that might offer some help (or not!):

    I'm aware that the accounting principles have quite a lot of impact on how the company is taxed, as well as the size of the company and the underlying investments and this can dictate how the tax wrappers work. The fair value accounting principle typically applies to all new companies now, on which there is quite a lot of information as it is a relatively new principle introduced in line with FRS102.

    My understanding is that since January 2016, collectives are generally seen more favourably than Bonds as there is no chance to defer bond tax on growth anymore. Bonds are taxed annually under loan relationship rules as they are potentially deemed 'complex'. Offshore bonds don't have much dinstinction either. Collectives i believe are therefore generally more straightforward. i wouldn't be able to suggest anything different but i'm sure there is probably a wide range of possible solutions in this area.

    I think the actual underlying investments chosen will matter, broadly speaking 60% or more invested in debt instruments such as fixed interest will also be taxed annually regardless of whether they're in collectives or not. Otherwise, the growth is not taxed until the funds are realised. Income is taxed as it arises i believe.

    If you have access to techlink professional there is a really helpful guide to the basics on there as well as further reading on the accounting principles and loan relationship rules. I read it quite a while ago so hopefully this is helpful and not a load of rubbish!

    Jamie
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  • Pru have a webex on this, but of course it's highly directed to their products. I've actually asked for a copy of it as I'm doing something similar and it's a while since I watched it. Will post a link if it covers alternatives. 
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  • Got the link from the Pru. It's about two-thirds of the way down. Corporate Investing Masterclass. 

    http://www.pruadviser.co.uk/content/knowledge/oracle_live/# ;
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  • Thanks for the Pru masterclass, well worth a watch.
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