Local Authority Loans

Many local authorities borrow money both in the money market and by public issues in much the same way as the central government. These loans are secured by a charge on the local rates of the authority, which makes them only slightly less secure than government stock. The yields are therefore marginally higher than government gilts.

Some short-dated non-negotiable local authority mortages can be bought at par direct from the local authority concerned. Longer-dated negotiable loans can be bought and sold on the Stock Exchange on lines similar to those for government stocks.

Limited companies

Some limited companies in the private sector also raise finance on fixed-interest terms, issuing dated debentures repayable on or before a named date, irredeemable debentures, or preference shares which are usually, though not necessarily, irredeemable. Both kinds of investment carry risks for the investor, though debentures are better secured than preference shares since they represent a loan to the company which takes priority both for income and capital over any claims by shareholders of the company. Preference shares, carrying slightly more risk than debentures, yield a slightly higher rate in terms of income.

Capital Gains

Capital gains made on sale or redemption of government stock are not, of course, liable to income tax. As far as capital gains tax is concerned they are given special treatment. If a stock is disposed of at a profit within a year of its acquisition, there is a liability to CGT on the gain. But since the first £30,000 of gain in any tax year is exempt anyway, this will not concern most small investors. Profit made on government stock held for over one year is exempt from any CGT liability.

The impact of income tax and CGT was ignored on page 57 when calculating redemption yields, as only gross... see: Capital Gains

Personal And Business Finance 2018

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