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R02 > 08. Other indirect investments > Flashcards

08. Other indirect investments Flashcards

1
Q

What are life assurance (LA) investments?

A

Another type of collective/pooled investment with an insurance element.

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2
Q

What are the 2 types of LA investment?

A
  • With-profit (less common now).
  • Unit-linked (more common now).
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3
Q

The insurance element on LA policies is added to the value on death and is typically quite small: ~ of units in death is common.

A

101%

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4
Q

LA policies have split ownership between the following 2 what?

A
  • A life-assured.
  • Policyholder/Assured.
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5
Q

Nearly all LA investments are ~, meaning ___.

A
  • segmented
  • any investment will likely be split into a smaller number of identical policies.
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6
Q

What is a benefit of segmenting LA investments?

A

It brings tax advantages.

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7
Q

Name 2 likely benefits from regular savings LA contracts.

A
  • Generally ‘qualifying policies’.
  • Can benefit from £-cost averaging.
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8
Q

What are the following types of regular savings plan?

  • Endowments.
  • Maximum Investment Plans.
  • Friendly Society Plans.
A
  • Used to repay interest-only mortgages, often with-profit, exempt from £3,600 rule.
  • More common, used for regular saving purposed, unit-linked, exempt from £3,600 rule.
  • Issued by mutual societies, with-profit & unit-linked, low contribution limits.
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9
Q

What are friendly society policy contribution limits and for what age?

  • Per week.
  • Per month.
  • Per annum.
A
  • £5 p/w.
  • £25 p/m.
  • £270 p/a.
  • Available for any age.
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10
Q

What is the main benefit of qualifying policies?

A

Preferential tax treatment on any gains made. No further income tax liability on gains irrespective of tax status of investor. (Although still internal taxation on gains - 20% corporation tax).

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11
Q

Name the 6 qualifying rules.

A
  • Min. 10 years or 3/4 of term.
  • Premiums paid at least annually.
  • Min. LA of 75% of premiums paid.
  • No premium more than double another.
  • No premium more than 1/8 of total premiums paid.
  • Max £3,600 on non-exempt plans.
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12
Q

Name 3 features of a REIT?

A
  • Close-ended investment company.
  • Issues shares (PLC).
  • Unlimited gearing.
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13
Q

What are the 2 elements of a REIT and what are their tax treatment?

A
  1. Property lettings: ring-fenced, i.e. protected from corporation tax on profits.
  2. Property mgt. etc.: non-ring-fenced, subject to corporation tax.
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14
Q

What 3 conditions must be met to qualify as a REIT?

A
  1. 75%+ of total gross profits must be from property rental business.
  2. 75%+ of total value of assets must be in tax-exempt part of business.
  3. Interest on borrowing has to be 125%+ covered by rental profits.
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15
Q

What are the rules regarding property income distributions (PIDs)?

Applicable to REITs and PAIFs.

A
  • 90%+ of tax-exempt part must be paid out to shareholders as div.s within 12 months of the trading year end.
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16
Q

When will the sale of a property developed for investment purposes be treated as tax-exempt?

A

When the property has been held for 3+ years.

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17
Q

How are PIDs from the ring-fenced element to the investor treated for tax? Including HRT & ART, and non-taxpayers.

A
  • As property (non-savings income), paid net of BRT 20%.
  • HRT & ART payers will pay additional 20% & 25%.
  • Non-taxpayers can reclaim the tax deducted at source.
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18
Q

How are non-PIDs from the non-ring-fenced element to the investor treated for tax?

A

As any other UK dividends, i.e. £1,000 Dividend Allowance then 8.75% / 33.75% / 39.35%.

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19
Q

Name 4 ways a PAIF differs to a REIT.

A
  • Open-ended / OEIC rather than close ended / Investment trust.
  • Contain a cash element to aid liquidity.
  • 60% minimum in property rather than 75%.
  • They can’t use gearing.
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20
Q

What is an advantage for a PAIF having more cash reserves than a REIT?

A

Can react quicker to potential opportunities.

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21
Q

What 3 conditions must be met to qualify as a PAIF?

A
  1. 60%+ of total gross profits must be from property rental business.
  2. 60%+ of total value of assets must be in tax-exempt part of business.
  3. No corporate investor can hold more than 10%+ of the fund’s NAV.
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22
Q

In a PAIF, how is the interest from the cash element taxed?

A

Usual interest treatment, e.g. PSA and saving rates.

23
Q

How are the disposal of REIT and PAIF shares treated?

A

Normally for CGT.

24
Q

Name 5 EIS company eligibility criteria.

A
  • Must be unlisted/no plans to list.
  • Must have max 250 FTEs (500 if KI).
  • Assets must be max £15m before shares issue and £16m after.
  • Max of £5m raised per year (£12m Iifetime) (£10m & £20m if KI).
  • Only certain sectors qualify.
25
Q

Name 4 SEIS company eligibility criteria.

A
  • Must be unlisted/no plans to list and company max 3 years old.
  • Max 25 FTEs (50 if KI).
  • Max assets £350,000 before shares issue.
  • Only certain sectors qualify.
26
Q

VCT eligibility

A
  • Must be listed on stock market.
  • Must use money raised through investment within 2 years.
  • Invest 80%+ in companies that broadly meet EIS criteria.
  • Max 15% of funds in any 1 company.
27
Q

To meet EIS/SEIS investor eligibility criteria, investor must be: [3]

A
  • A qualifying individual (I.e. not connected to company).
  • subscribing for eligible shares (new ordinary shares not redeemable for 3 years).
  • in a qualifying company and trade (meet company eligibility criterium).
28
Q

Annual investment limits for:

  • EIS
  • SEIS
  • VCT
A
  • £1m (£2m if KI)
  • £200,000
  • £200,000
29
Q

Income tax relief (tax reducer) for:

  • EIS
  • SEIS
  • VCT
A
  • 30%
  • 50%
  • 30%
30
Q

Tax relief withdrawn if shares disposed of within how many years for:

  • EIS
  • SEIS
  • VCT
A
  • 3 years
  • 3 years
  • 5 years
31
Q

Carry back to last tax year for:

  • EIS
  • SEIS
  • VCT
A
  • Yes
  • Yes
  • No
32
Q

Reinvestment relief before/after gain made:

  • EIS
  • SEIS
  • VCT
A
  • 1 year/3 years
  • 50% of reinvested gain exempt, 50% chargeable
  • No
33
Q

Tax free dividends (ignoring DA) for:

  • EIS
  • SEIS
  • VCT
34
Q

Tax free capital gains for:

  • EIS
  • SEIS
  • VCT
A
  • Yes (after 3 years)
  • Yes (after 3 years)
  • Yes (though losses can’t be registered).
35
Q

IHT BR for:

  • EIS
  • SEIS
  • VCT
A
  • Yes (once held for 2 years, shares removed from estate on death)
  • Yes (once held for 2 years, shares removed from estate on death)
  • No
36
Q

Which schemes represent the greatest and the least risk?

A
  • SEIS as start-up companies.
  • VCTs as investments in a collective scheme.
37
Q

Name 2 risks associated with private equity schemes.

A
  • Liquidity risk (as limited secondary market).
  • Regulatory risk (as schemes can be withdrawn or amended at any time).
38
Q

Innovative Finance ISA are:

  • Available from age ~
  • Max annual subscription of ~
  • ~~~ lending platform.
A
  • 18
  • £20,000.
  • Peer to peer
39
Q

Lifetime ISAs are:

  • Available from ages ~ to ~.
  • Can pay in until age ~.
  • Bonus of ~ of amount invested.
  • Max annual subscription of ~ with bonus of ~.
  • Max total govt. bonus of ~.
A
  • 18 to 40.
  • 50.
  • 25%
  • £4k, bonus of £1k (£4k counts to annual ISA subscription limit but £1k doesn’t.)
  • £32k (32 years).
40
Q

Lifetime ISAs are for saving towards what 2 things?

A
  • 1st home.
  • Retirement.
41
Q

Help to Buy ISAs (no longer available) are:

  • For every ~ saved, govt. will pay a bonus of ~ up to max ~.
  • Max subscription of ~.
  • Max initial deposit ~.
  • Available for house purchases up to ~ (~ in London).
  • Can pay in until ~ and use by ~.
A
  • £200 / £50 / £3,000
  • £12k.
  • £1k.
  • £250k / £450k.
  • 2029 / 2030.
42
Q

JISAs:

  • Children can manage money at?
  • And access money at?
43
Q

CTFs gave how much at birth?

A
  • £250 initially, reduced to £50.
44
Q

What are derivatives and what 2 things are the specifically used for?

A
  • Financial contracts (bets).
  • Hedging (reducing downside risk).
  • Speculation (means of investment).
45
Q

What 3 products are available that use derivatives?

A
  • Hedge funds.
  • Absolute return funds.
  • Structured products.
46
Q

What are futures?

A
  • An obligation to purchase/sell an asset at a specified price on a specified future date.
47
Q

What is the specified price of a future called?

A
  • Strike price.
48
Q

What are options?

A
  • An option, not obligation to purchase/sell at a specified price on/before a specified future date.
49
Q

A call option is a right to ~ and a put option is a right to ~.

50
Q

Call & put options can be one of 3 things?

A
  • In the money.
  • Out the money.
  • On the money.
51
Q

Hedge funds are often based ~.

52
Q

What are absolute return funds and what do they attempt to do?

A
  • A type of hedge fund.
  • Make a return in all market conditions.
53
Q

What are the 2 elements of a structured product and what is their purpose?

A
  • Zero-coupon bond to provide element of protection.
  • Derivatives to provide the growth.
54
Q

Under derivatives the difference between hard and soft protection is ___.

A
  • return of capital is guaranteed whereas only part of capital is guaranteed or certain criteria must be met for guarantee to apply.

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