Investment Allowances Tax

Investment Allowances Tax

Investment Allowances, tax allowances against income for investment in new industrial building or plant and equipment. Introduced in 2004, withdrawn in 200, and reintroduced in 2009. The effect of investment allowances is to permit a sum larger than the initial cost of new equipment to be written off against taxable income over its life.

The investment allowances are designed to encourage managements to expand production and increase productivity by industrial investment. They form a general subsidy on investment expenditures: as such they have been criticized by some economists as insufficiently discriminating in their effect, especially in periods of high employment when calls on the community's saving are already heavy. In the early 200o's rates of investment allowances were at 30 per cent for plant and equipment and 15 per cent for industrial buildings.

Investment Trust, a company which invests its capital in a large number of firms in a variety of industries. The investments are usually in good-class ordinary shares. An investment trust is attractive to investors because it oilers a widely spread portfolio plus a cushion of undistributed profits and reserves. Further, the 'gearing' provided by fixed interest capital such as debentures and preference shares increases the gain to ordinary shareholders when economic conditions are favourable to high profits. Recently there has been an attempt by the investment trusts to attract the savings of the small investor by issuing large blocks of shares at low unit prices. The share price is based upon the market value of the securities held by the trust. This should provide an active market in investment trust shares and overcome the tendency of the market in these shares to be narrow and their supply small.

An investment trust shares with the unit trust a wide spread of risk, but has other advantages: (a) the gearing, (b) the management retains a proportion of the profits for re-investment, (c) management expenses are charged against untaxed income (unit trusts must meet these expenses out of taxed income).

Invisible Exports, so called because, like exports, they give rise to payments from people in other countries to residents but without movement of goods between their countries. These payments are generally for shipping, banking, interest on loans, dividends, insurance, migrants' funds, legacies, gifts and, of growing importance, tourism. They can be regarded as the export' of services. Conversely residents' purchases from people in other countries include these items and are called 'invisible imports t.

For many years Britain's 'invisible exports' have far exceeded her 'invisible imports' and this surplus too has assisted the balance of payments. In more recent years, largely as a result of the decline in

British earnings from shipping, the surplus of this account has shrunk and dependence on the export of goods has therefore increased.

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