The Budget confirmed the changes to capital gains tax (CGT) for mutual funds announced in the pre-Budget report.

The changes announced see the introduction of a flat rate of 18% tax on capital gains, with the removal of indexation allowance and taper relief.

"There are winners and losers to the CGT changes," says Tim Rees, head of financial planning at Clerical Medical. "In the mutual funds versus investment bonds debate we believe when the tax efficiency, relative product costs and administrative simplicity are compared, financial advisers will continue to recommend investment bonds."

The six point case for investment bonds:

1. Control of the tax point

In a bond no personal tax is paid until a 'chargeable event' occurs, for example, cashing in the investment bond, which can be extremely useful for an investor who is a higher rate taxpayer when they invest, but likely to become a basic rate taxpayer later, for example in retirement. If an onshore bond is cashed in when the investor is a basic rate taxpayer they will have no further tax to pay on the income and gains.

2. Defer higher rate tax on income

The tax rates on income received by a fund for bonds and OEICs are broadly neutral. However, higher rate taxpayers investing in bonds have the considerable advantage in that they can defer the higher rate tax on their investment until a chosen time in the future. An investor in an OEIC must pay the higher rate tax on any income whether it is accumulated or not.

3. Switch funds without triggering a tax charge for the investor

A bond allows the investor to switch between funds without triggering a personal tax charge. In an OEIC this will usually be a disposal for CGT purposes.

4. Give bonds away without a tax charge

Bonds can be given away without triggering a tax charge. With an OEIC this would normally be a disposal for CGT purposes, although transfers between spouses and civil partners would not trigger a CGT liability. This can be particularly useful for making gifts into trust as part of inheritance tax planning, and for parents investing for university funding.

5. Bonds as trustee investments

Bonds can be very convenient for trustee investments. They are classed as non-income producing assets and so for many trusts, they can save a great deal of trustee administration and costs.

6. 5% annual withdrawal – deferring the tax charge

Bonds allow up to 5% a year to be withdrawn without triggering a tax charge. This allowance is cumulative so if no withdrawals are made in year 1, 10% can be withdrawn in year 2. The allowance continues until all of the original investment has been withdrawn.

That's not all! For the rest of our Budget 2008 coverage, click here