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Tax implications of structured products

This article is part of
Guide to Structured Products

Structured investments need to be looked at on a case by case basis, according to Adrian Neave, managing director of Gilliat Financial Solutions.

He says: “There are delivery mechanisms that will attract CGT treatment and likewise those that attract income tax.”

Due in part to their defined payoff dates, Ian Lowes, founder of StructuredProductReview.com, says by carefully introducing structured products within a financial plan, they can be used to maximise tax exemptions and allowances.

If a structured product is held directly, i.e. outside a tax shelter such as an Isa, Mr Lowes says it will usually be subject to tax.

Most growth, auto-call and growth with auto-call plans are designed in such a way that a UK retail investor may incur a potential capital gains tax liability at maturity.

Mr Lowes says this can prove to be very favourable as every individual has an annual capital gains exemption (£10,900 for the 2013 to 2014 tax year).

He says any losses will usually be able to be netted against gains for the tax year in which they fall.

Any gains that fall outside of the annual exemption in the year of maturity will be subject to tax at the prevailing rate, he adds, which for the 2013 to 2014 tax year is 18 per cent for basic rate taxpayers and 28 per cent for higher rate taxpayers.

Income plans are normally, but not always, subject to income tax. Income may be distributed gross or net of basic rate tax depending on the plan.

However, income payments will usually be subject to UK income tax at the investor’s highest marginal rate.

If income is paid net of basic rate income tax, Mr Lowes warns higher rate tax payers will be subject to a further liability via self assessment, which should be declared to HM Revenue and Customs.