Taxation of tracker bonds...

Discussion in 'Investments' started by rob oyle, Mar 17, 2017.

  1. rob oyle

    rob oyle Frequent Poster

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    So, against my advice my mother invested in some of those Ulster Bank Combination Accounts several years ago. A proportion (in this case 20%) was 'deposited' in a high interest account (capital and interest of 10% paid after 2 years) and the balance was 'invested' with a view to 80% of the increase in a basket of shares paid out as a return at the end of the period. In this case, the return was of the order of 15% over 4 years.

    Now that the balance of her funds have been returned, I'm trying to ascertain the tax treatment of the two parts. As I would read it, DIRT should be taken from the interest paid after 2 years, but what is the classification of the second gain. If this is a capital gain, she'd be covered by the small annual allowance. If it's interest, there would be a further DIRT liability. Any had to deal with these products (and their taxation) before?
     
  2. dub_nerd

    dub_nerd Frequent Poster

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    I don't know the answer but there's another possibility: there's a different (higher) rate of DIRT that applies to interest that is not paid out annually.
     
  3. Gerard65

    Gerard65 New Member

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    Typically the entire proceeds from bank investments such as this are subject to DIRT, irrelevant of the 'split'. The reason for this is that the investment is established as a deposit account day 1 so not matter what the set up, structure etc. any profits will be liable to DIRT. I would imagine therefore that DIRT is payable on both But UB should be able to answer this very quickly.
     
  4. Brendan Burgess

    Brendan Burgess Founder

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    32,804
    Agree with Gerard

    These are deposit accounts with the rate of interest determined by the performance of some index.

    Brendan