Royal & SunAlliance play down tax risks of UK funds
Royal & SunAlliance have introduced eight tax-effective UK funds to the New Zealand market.
Wednesday, September 27th 2000, 11:11PM
The eight funds being promoted in New Zealand are; Emerging Markets, European, EuroTech, Far East, FTSE 100 Tracker, International Growth, Japan Growth and UK Smaller Companies.
Unit trust marketing manager Rod College says the main advantage of these funds is that they don't pay capital gains tax at the fund manager level.
He also says Royal & SunAlliance's funds are attractive as their fees are competitive. For instance all eight funds have a fixed entry fee of 1.5%, while some of its competitors are charging up to 3%.
Annual management fees range between 1% and 1.5% and there are no additional New Zealand charges.
College says there can be up to 5% spread between entry and exit prices on these funds in the UK. However, in New Zealand the funds were bought and sold on a mid-market pricing basis which removed the spread. That is the entry and exit fees will be the same.
Another feature of the funds is that they can only be bought in New Zealand dollars.
College says Royal & SunAlliance have negotiated a sharp foreign exchange deal with one of the banks.
As a result of this deal the company can convert the NZ Dollars into pounds at a preferential rate.
Royal & SunAlliance have played down the risks that the Government may remove the tax-favoured status of these funds.
It has provided advisers and investors with a letter of comfort from its tax advisers.
College says if the funds were put under the Foreign Investment Funds tax regime capital gains tax wouldn't be applied to investments of less than $50,000.
"For investments of (more than) $50,000 investors are likely to be able to exit offshore funds prior to end of tax year," he says.
College also says that tax on income is not a big issue as the funds have low distribution levels.
The Public Trust were the first to roll out a tax-effective UK fund in New Zealand. Others to follow include Ord Minnett, MoneyOnline and AMP Asset Management.
Challenger are due to start promoting its fund on Friday and next week Armstrong Jones will be talking to advisers about its funds.
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