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Published online by Cambridge University Press: 03 October 2014
The paper points out that, owing to the increasing complexities of U.K. tax legislation, it is no longer possible in the majority of cases to use unadjusted yields for comparative purposes in the selection or review of investments. The three main types of investment in respect of which yield adjustments to allow for the effect of taxation require to be made are considered, which are as follows :—
(1) Redeemable investments.
(2) Shares of U.K. companies which receive Double Taxation Relief because of their overseas interests.
(3) Shares of foreign companies in respect of the dividends on which U.K. shareholders are entitled to claim Double Taxation Relief.
The taxation assumptions which require to be made for the calculation of correct comparative yields on the above types of investments are discussed and formulae are given which make allowance for the effect of these assumptions. Comparative tables are also given showing the yields brought out on differing tax assumptions and on two different basic methods of calculating redemption yields.
In the body of the paper the assumptions discussed and formulae given refer to a British life office or life fund doing business in the U.K. only; but in a short appendix mention is made of some further adjustments which may be required in the case of life offices which also do business abroad.
page 96 note * The above paragraph assumes that one is prepared to accept—as I think one must, in the conditions of practice—the approximation involved in calculating one yield only for each security. In strict theory, three yields should be calculated for each security—one in respect of each fund—and these three yields combined in the appropriate proportions.