9 - Direct Investments (A)

Question 1

What’s the difference between a direct and an indirect investment?

Answer 1

Direct - directly investing into things such as cash deposits, gilts/fixed interest securities, individual properties and shares or equities

Indirect - investing in something through a wrapper, such as ISAs, collectives, life assurance policies (investment bonds) and pensions

Question 2

How is interest from cash deposits and savings accounts taxed?

Answer 2

Income tax

Question 3

NS&I Investment Account
1. Min. age to open
2. How is interest taxed
3. Withdrawal limits
4. Min. and max. saving limits

Answer 3

1. 16, or under 16 if opened on behalf of a child
2. Savings income
3. Can withdraw anything at any time, no penalties
4. £20 min, max £1m (£2m joint acc.)

Question 4

What were the two types of NS&I Savings Certificate available and how did they work?

Answer 4

1. Fixed interest - lump sum investment, held for up to 5 years, tax-free interest
2. Index-linked, similar to above but index-linked

Question 5

Who can reinvest with a new NS&I savings certificate?

Answer 5

Anyone with a maturing certificate.
Otherwise they were stopped for new investors in 2011.

Question 6

NS&I Green Savings Bonds
1. Min. age to open
2. How is interest taxed
3. Withdrawal limits
4. Min. and max. saving limits

Answer 6

1. 16 (must be done online)
2. Savings income (only when bond matures)
3. Not permitted until bond matures at 3 years
4. £100 min. and £100,000 max (£200k joint acc.)

Question 7

NS&I Guaranteed Income and Growth Bonds
Which one pays interest and which reinvests?

Answer 7

Income - interest (income to the investor)
Growth - reinvests (to ‘grow’ the fund)

Question 8

NS&I Guaranteed Income and Growth Bonds
1. Min. age to open
2. How is interest taxed
3. Withdrawal limits
4. Min. and max. saving limits

Answer 8

1. 16 (must be done online)
2. Savings income
3. Not permitted until bond matures at 1 year
4. £500 min. and £1m max (£2m joint acc.)

Question 9

When is interest credited on the NS&I Direct ISA?

Answer 9

5 April, annually

Question 10

What are the minimum and maximum limits on an NS&I Direct ISA?

How much can be invested each time after the initial deposit?

Answer 10

Min. £1, no max.

Further deposits of £1 can be made.

Question 11

Which taxpayers are more likley to benefit from having NS&I Premium Bonds?

And why?

Answer 11

Higher and additional rate

Because it’s tax-free so in theory, an extra allowance they can use in addition to PSA

Question 12

What do the monthly prized range from with NS&I Premium Bonds, and what is their tax treatment?

Answer 12

£25 - £1m, all tax-free

Question 13

NS&I Premium Bonds
1. Min. age to open
2. Withdrawal limits
3. Min. and max. saving limits

Answer 13

1. 16, or under 16 if opened on behalf of a child
2. Can withdraw anything at any time, no penalties
3. The minimum holding is £25, with a maximum of £50,000.

Question 14

How is income from fixed-interest securities taxed?

How often is interest paid and it is gross or net?

Answer 14

Savings income

Twice a year, gross

Question 15

What are two ways in which you can dispose of a gilt?

Answer 15

1. Hold until maturity
2. Sold on stock exchange before maturity

Question 16

What is the CGT treatment of gilts?

Answer 16

Exempt

Question 17

What type of bonds are debentures and loan stock?

Answer 17

Corporate bonds

Question 18

Can a company repay their loan through a corporate bond earlier than maturity?

Answer 18

Yes, if it wants to

Question 19

Corporate bonds
1. Is interest paid gross or net?
2. How is interest taxed?

Answer 19

1. Gross
2. Savings income

Question 20

What is the difference between a corporate bond and a qualifying corporate bond when it comes to CGT?

Answer 20

Qualifying is exempt

Question 21

What is a deeply discounted security?

Answer 21

‘Deeply Discounted Securities’ (DDS) are government securities, commercial bonds and loan stock, where the amount paid on redemption is higher than the price at which they were issued.

Question 22

What is the CGT treatment for a deeply discounted security?

Answer 22

Exempt as it’s deemed a qualifying bond

Question 23

How are deeply discounted securities taxed to the investor?

Answer 23

They are taxed on the difference between the buying a redemption amount, if the buying price was less than the redemption amount. Losses are allowable.

Question 24

Local authority bonds are taxed as savings income and paid net, true or false?

Answer 24

False - taxed as savings income but paid gross (like nearly all savings income)

Question 25

What is the GCT treatment on local authority bonds?

Answer 25

Exempt as it’s deemed a qualifying bond

Question 26

Is interest from an offshore bank account taxable?

Answer 26

Yes

Question 27

For which NS&I product currently on offer is the interest tax free?

Answer 27

Direct ISA