10 - Indirect Investments (C) Flashcards
Define a protected or guaranteed (structured) equity product
They provide investment returns that are linked to the performance of equity investments – usually an index such as the FTSE 100 – with some element of the return protected or guaranteed.
The returns are usually achieved by providers using a combination of a deposit or fixed interest investment and a derivative of the chosen index or equities.
Why are protected or guaranteed (structured) equity products sold in tranches and not on a continuous basis?
Because the terms change with movements in the pricing of derivatives that underlie the products’ performance.
With a protected or guaranteed (structured) equity product, the investor can choose to receive of income (taxed) or gains (chargeable). Why might they opt for gains?
To make use of the CGT allowance
Structured products can be held within ISAs orSIPPs, what is the benefit to this?
Investment returns will be tax free.
What makes a structured product a fairly illliquid investment?
They tend to have a fixed term so the underlying assets cannot be surrendered at any chosen time
How can a structured product be useful for IHT mitigation?
Can be invested in if the investor does not expect to live for much longer.
Example:
An investment of £100,000 might only have a probate value of £80,000 one year after making the initial investment – despite aiming to pay out a much higher sum at the end of the product term. The investment would therefore reduce the investor’s estate by £20,000, saving IHT of £8,000 (£20,000 × 40%).
The beneficiary will eventually receive the higher sum payable when the product matures.
What tax vehicles can be used to hold a structured product? (4)
Onshore and offshore insurance bonds
Closed-ended investment companies
Listed bonds or medium-term notes (MTNs)
Deposit accounts
What is the only tax vehicle for a structured product that cannot be held in an ISA?
Onshore and offshore insurance bonds
