Basic taxation

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9. The tax treatment of collective funds

If you hold mutual funds outside of your pension and ISA, you can still look for tax efficiencies.

• Unit trusts, open ended investment companies (OEICs) and investment trusts:

  When held outside an ISA or pension plan, the capital gains tax liability falls on the investor, who can offset it against the annual CGT exemption.

• Insurance company bonds:

  Insurance company bonds and life assurance funds pay tax broadly equivalent to the basic rate of tax on income and capital gains. The income tax cannot be reclaimed so, generally, these bonds are not considered suitable for non-taxpayers. Moreover, the capital gains tax paid by the fund cannot be offset against an individual's exemption.

  Advisers tend to regard this feature as a serious drawback, although there are some special features of certain insurance funds that can be attractive to higher rate taxpayers.

• Offshore funds:

  The appeal of offshore funds for UK residents will depend on the tax jurisdiction of the fund and the way the fund itself is taxed (in particular, whether it distributes its income or rolls it up in the fund). It will also depend on your own tax position as an investor. For non-UK residents offshore vehicles can be very attractive but their merits are questionable for UK residents. Either way, expert advice is essential.

1. Your tax breaks courtesy of the government 2. Keep it legal 3. Income tax - first principles 4. Income tax - keeping it in the family 5. Capital gains tax (CGT) 6. How to avoid CGT on your share portfolio 7. Inheritance tax (IHT) planning 8. The most popular tax efficient investments 9. The tax treatment of collective funds 10. Tax efficient but may be very risky 11. Self assessment - who needs it? 12. Self assessment - key dates 13. Do you need an adviser? 14. Conclusion