Diversify Your Portfolio With Alternative Shariah Investments

ALTERNATIVE SHARIAH INVESTMENT PRODUCTS

Unit Trusts & General Investment Accounts (GIA)

Unit Trusts and General Investment Accounts (GIAs) are unwrapped investment vehicles that do not carry a tax wrapper like pensions or ISAs. As a result, they are subject to income tax (based on your income tax band or dividend tax) and capital gains tax upon disposal.

Uses for Unit Trusts & GIAs

These investment options are commonly utilized when other tax wrappers are unavailable. They can serve as temporary holding accounts until your ISA or pension allowances are renewed the following year. Investors often consider them for:

Short-term holdings: Keeping funds accessible while waiting for ISA or pension contributions.
Commercial Investments: Acting as a vehicle for investments from a limited company.

Tax Considerations

Given that the underlying investments generate income subject to income tax and capital gains tax, it’s crucial to monitor the annual yield to stay within your relevant allowances. Additionally, understanding the capital gains tax allowance at disposal is vital for effective tax planning.

Additionally, they can be used as a vehicle for commercial investments, such as from a limited company, given no ISA or pension allowances are available, although employer pensions are available.

Shariah-Compliant Options

The good news for those seeking halal investment solutions is that Unit Trusts and GIAs can hold halal investment funds. This ensures that you can continue to invest in alignment with your beliefs and values without compromising on ethical considerations.

As part of our advisory services, we will thoroughly discuss the tax implications of holding these types of investments. Our aim is to help you navigate the complexities of investment taxation and recommend the most tax-efficient strategies for disposing of your investments.

To find out more about Shariah compliant investing, click on the button below:

Shariah Compliant Investments

A Capital Redemption Bond is a long-term investment vehicle designed to grow your wealth over time. This investment option pools your funds into a diversified mix of assets, including equities and sukuks, giving your capital the opportunity to appreciate.

Capital Redemption Bonds

Tax Implications

The provider of the Capital Redemption Bond pays tax on the income and any gains within the underlying investment fund. If you are a non-taxpayer or a basic-rate taxpayer, typically no additional tax liabilities will arise, as basic rate tax is considered already paid. However, if the gains from encashment elevate you into a higher or additional tax bracket, tax may be due although top slicing relief may be available to mitigate your tax burden.

Flexible Withdrawals

Investors can make tax-deferred withdrawals of up to 5% of the initial investment amount each year without incurring immediate tax liabilities. If the full withdrawal isn’t utilized in one year, it can be carried forward to future years, allowing for strategic financial planning.

Structure and Benefits

Capital Redemption Bonds are usually segmented into 100 to 1,000 individual parts, providing flexibility when it comes to withdrawal options. You can opt for either partial or full segment encashments. These bonds can be held for up to 99 years and can be used effectively for inheritance tax planning purposes due to their structure.

Given their complexity compared to ISAs, it’s crucial to seek financial advice from a qualified adviser when considering Capital Redemption Bonds to ensure they align with your investment goals and tax situation.

Capital Investment Bonds

Onshore Capital Investment Bond

Onshore Capital Investment Bonds serve as an alternative to Capital Redemption Bonds. The primary distinction is that these bonds function as life insurance policies for tax purposes, even though the actual life insurance coverage typically ranges from 0.1% to 1% of the total investment.

Onshore bonds operate similarly to Capital Redemption Bonds regarding tax treatment, but they necessitate a life assured, which can be the investor or another individual. Upon the death of the last life assured, the investment bond is cashed in, and after deducting any applicable charges, a cash-in value is provided.

Structure and Life Assurance

Offshore variants of Capital Investment Bonds are also available, where the key difference lies in the fact that basic rate tax is not considered to have been paid. These offshore bonds can be particularly advantageous for non-taxpayers or individuals planning to reside abroad at the time of encashment.

Offshore Variants

Shariah Compliance Considerations

The life insurance component of Onshore Capital Investment Bonds may pose challenges for Muslim investors. Therefore, it is imperative to seek advice from a Shariah scholar.