Budget: Tax efficient bond buying for investment trusts confirmed

Investment trusts will be able to adopt a new tax framework which will allow them to invest in interest bearing assets in a tax efficient way by removing the point of taxation from the investment trust to the shareholder. Investment trust shareholders will have broadly the same tax treatment that direct holders of assets such as bonds have.

The shareholder will be taxed as if it was a payment of yearly interest.

The measure will take effect for interest distributions from 1 September.

Currently investment trusts pay corporation tax on an interest income they receive, which will remain the case, but trusts will be bale to receive a tax deduction for any interest distributions made effectively removing the liability.

Association of Investment Companies (AIC) director general Daniel Godfrey said: "Allowing investment trusts to invest tax efficiently in bonds will mean the industry can compete more effectively with alternative structures. This will open up new opportunities at a time when increasing numbers of consumers are considering bonds as an investment option."

"It will support the UK as an international financial centre and should be warmly welcomed. Securing this change has been a long-standing ambition of the AIC and we are delighted that today’s announcement brings certainty to the outcome and the introduction of a new regime another step closer."