Bonds exposed

There is an encouraged stampede for new Pensioner Bonds designed to bring in £10 billion for the Treasury from a likely one million subscribers.

I shall give just one example of how what you see is not what you get.

Our pensioner is a 40 per cent tax payer who can afford to give the Treasury £10,000 on loan for three years, on a promise of 4 per cent interest per annum. £400 each year should amount to £1,200, but it is too good to be true.

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The interest is not paid out annually, but adds on to the Treasury’s books till the end of the term, at which time tax has to be paid as follows: 40 per cent ie £480 comes off £1,200, leaving £720; giving interest per annum of £240 –which in reality is just 2.4 per cent.

Each year’s interest has to be declared as earned, even though not yet paid.

A one-year bond will pay out, for a basic taxpayer, 2.24 per cent, and 1.68 per cent for a higher rated one.

Non-taxpayers will be taxed at 20 per cent and will have the hassle of claiming this back from Inland Revenue each year. There is no option of drawing a regular income from this investment. Cash withdrawals are allowed but only under penalty.

Ronald Rankin