Split capital investment companies are best suited to sophisticated, risk-tolerant investors who have a specific strategy in mind, according to Russ Mould, investment research director of AJ Bell.
Mr Mould says split capital investment trusts should also be considered by those whose tax situation could benefit from some careful planning.
For example, Mr Mould says some share classes generate no income so there is no income tax to pay.
He says this may be useful for those who pay the 40 per cent and 45 per cent rates of income tax, since capital gains tax rates are lower.
Splits can be complex and your clients should not invest in them if they do not understand the risks, warns Annabel Brodie-Smith, communications director of the Association of Investment Companies.
Zero dividend shares can be useful for those who are looking for a predetermined return but Ms Brodie-Smith warns investors must be aware that this is in no way guaranteed, and it is possible to lose money.
Zeroes can also be useful from a tax planning perspective because there is no income tax to pay since they pay no dividend, she adds.
Other split capital trust share classes can be useful for investors seeking income, capital growth, or a combination of the two, but again, Ms Brodie-Smith warns risk profiles do vary.
Ms Brodie-Smith says: “Capital shares can be useful from a tax planning perspective because again, since capital shares pay no income, there’s no income tax to pay.
“Some investors may invest in a split not because of the unique structure, but simply because they like the company/mandate, etc – but investors need to make sure they choose the right share class for them.”
