Taxation - unit holdings

[iActuary]

Solutions 4.8 and 4.14 say that holders of unit trust or underlying assets will be taxed broadly the same..

However, as I understand, dividends from unit trusts are taxed in the same way as equities (i.e. no look through). It is different from holding directly the underlying assets if the portfolio includes non-equity assets such as bonds.

In terms of capital gains, qualifying bonds are exempt from tax but it will be taxed if it forms part of the unit trust portfolio?

So just to seek clarifications, are these differences seen as immaterial and therefore the comment "broadly"?

 

[Colin McKee]

Hi, This will be a complex area because you get all sorts of investors (corporate, basic-rate, higher-rate, pension funds ...) and all would suffer different tax issues. So it definitely will be "broadly". But it may be closer than you think. If we take a basic tax payer:

Invest in equities directly, and you get net dividends, but pay no more income tax, and you pay tax on any gains. invest through an IT, and the IT receives net dividends, but pays no more tax (as it is franked income). These dividends are paid out to shareholders who pay no more tax if they are basic rate tax payers. If the trust gets a gain, it is exempt. But if the gain increases the IT price, then the investor gets the gain when he or she sells the shares. So its close to "see though".

With UTs it would be the same. Unit trusts would pay corporation tax, but not on franked dividends. Likewise UT dividends in the hands of investors would be franked and therefore no extra tax payable.