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I am considering investing in Permanent Interest Bearing Shares (Pibs). Do they work like gilts, with the interest accruing gradually, or like shares which can be purchased ex-dividend? Also, when do Pibs actually pay their interest – I would like to build up a year-round portfolio.
Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, says a range of building societies began to issue Pibs – characterised by their generally high yields – in the early 1990s.
For those societies which went on to demutualise, the equivalent of Pibs are PSBs – Perpetual Sub Bonds.
Part of the reason for these higher yields – 6 to 8 per cent currently – is the greater risk associated with Pibs.
There is no access to the Financial Services Compensation Scheme should the issuer go bust and, in such an event, Pibs’ holders would rank below all other creditors.
In addition, should the issuer miss a payment, the interest is non-cumulative. While such a scenario is unlikely, it is worth being aware of – Northern Rock saw its PSBs virtually halve in price recently.
In spite of being called “shares”, Pibs work like other fixed-interest securities and gilts – the price will react conversely to interest rates. But their lack of liquidity needs to be borne in mind when buying and selling.
The price will be quoted “clean” to the investor, with accrued interest added or deducted accordingly when trades are executed.
Pibs are generally irredeemable, but some can be redeemed at a future date at par (issue price). In such instances, investors will need to include any capital loss in their calculations of returns. However, Pibs are not subject to capital gains tax.
As a general rule, interest payments are made twice a year, and these dates vary between issuers, so it is technically possible to build up a portfolio with income paid monthly. FT Money’s Databank pages carry a listing of Pibs (see Pages 18-19).Any tax relief for character homes?
The FT (House and Home, October 6/7) featured the tale of the UK’s oldest inhabited family house, Saltford Manor, near Bath, which dates back to 1148. Are there any tax breaks or other public financial support for owners of such national treasures?
Simon Leney, partner in the private clients group at solicitors Cripps Harries Hall, says there is no special income tax relief, but there has been pressure on the Treasury to approve a proposal to allow maintenance costs of up to £50,000 in any one year to be deductible against taxable income.
There is “conditional exemption” from inheritance tax and capital gains tax as long as the owner complies with the required conditions of maintaining the building, and allowing public access for at least 28 days a year. The reliefs are only available for buildings that are judged to be of outstanding historic or architectural interest. The judgment is made by HM Revenue & Customs on behalf of the Treasury and in consultation with heritage bodies (such as English Heritage).
Most (but not necessarily all) such buildings will be Grade I or II Listed, as designated under the Town and Country Planning Act. Alterations (not repairs) to such buildings that have been approved under the town planning rules are in general VAT-free.
Grants are available for repairs or improvements for such projects, but they are discretionary. For English property there is no government grant scheme. Grant-making bodies able to help individuals are local authorities and English Heritage. Qualifying properties in Wales or Scotland, by contrast, are eligible for government grants.
There is no general council tax relief for historic buildings. Where they have been the home of a business, listed buildings have been eligible for up to six months’ relief when empty, but this relief will be abolished from 1 April 2008.Dealing with UK banks overseas
FT Readers’ Questions (October 20/21) says that when people move overseas to work, it is better to get their UK bank to pay interest gross and then settle any tax owed in their new country. I understand there is a requirement to fill in an HMRC R105 form. But many banks won’t accept this form and direct me to their offshore savings arms, which I am less keen to have my savings with. What am I doing wrong?
Andrew Tailby-Faulkes, tax partner at accountants Ernst & Young, says you are correct that form R105 must be used to apply to banks to have interest paid gross on the basis of non-residence. However, banks and building societies are not obliged to accept the application, in which case they will continue to withhold UK tax. There may be a number of reasons for this rejection: it may be an administrative burden or it may just be the bank’s policy to direct customers to their offshore branches in these circumstances.
Generally though most banks are prepared to stop deducting tax for non-resident customers.
The advice in this column is specific to the facts surrounding the questions posed. Neither the FT nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
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