Gilts and collective investments (OEIC/unit trusts)

Gilts split down the middle, and the exam tests each half against the other. The DISPOSAL side is exempt from Capital Gains Tax — a gain or loss on selling a gilt (and most corporate bonds) never enters the CGT computation, in either direction, with no holding-period condition attached; 'exempt' here means exactly what it meant in the ISA lesson: outside the computation, not zero-rated inside it. The INCOME side is fully taxable: coupon interest is ordinary savings income, taxed like bank interest with the starting rate for savings and personal savings allowance in the usual order. Candidates invert this both ways — taxing the exempt gain, or letting 'government-backed' bleed into 'tax-free interest' — so anchor it as a pair: gains never, coupons always. For OEICs and unit trusts the decisive fact is what the FUND holds: more than 60% in interest-bearing assets (measured by asset value, not by the fund's income) makes it a bond fund whose distributions are taxed as INTEREST, with savings-income allowances; anything else is an equity fund whose distributions are DIVIDENDS, with the £500 allowance and dividend rates. The classification changes which allowances and which rates apply to identical cash. And keep its scope tight, because the exam will stretch it for you: the 60% test governs how income distributions are taxed, and nothing else — disposals of either kind of fund are ordinary CGT events; only the offshore reporting-status rules (next lesson) change disposal treatment.