Investment Trusts

Question 1

Benefits of investment trusts

Answer 1

• maybe trading above NAV when David disposed of them
• gearing may increase returns
• easily sold if traded daily
• can be wrapped in to a stocks and shares isa
• typically low management charges
• global equity in line with his ATR
• investment trusts tend to outperform collectives
• can use dividend allowance

Question 2

Drawbacks of investment trusts

Answer 2

• may trade at discount at disposal
• may not trade daily so not as liquid
• gearing may increase negative returns
• may not be possible to hold them on a platform
• purchase incur stamp duty
• lacks diversification as majority in equity
• excess over dividend allowance will be taxed at 32.5% as David is a higher rate tax payer

Question 3

How Davids Inv Trusts can fund his and June’s isa allowances without incurring CGT

Answer 3

• using Davids CGT exemption
• he can sell shares to fund or wrap £20,000 in an ISA
• ensuring the gain does not exceed £11,300
• gain is a small enough amount to to have to use previous years losses
• David transfers £20,000 of the inv trust to June
• using the spousal exemption
• so June receives the shares at base cost
• June then sells/transfers those into her ISA
• using her CGT exemption also(as above)