9 - Direct Investments (A) Flashcards
A Cash deposits and fixed-interest securities
What’s the difference between a direct and an indirect investment?
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
How is interest from cash deposits and savings accounts taxed?
Income tax
NS&I Investment Account
1. Min. age to open
2. How is interest taxed
3. Withdrawal limits
4. Min. and max. saving limits
- 16, or under 16 if opened on behalf of a child
- Savings income
- Can withdraw anything at any time, no penalties
- £20 min, max £1m (£2m joint acc.)
What were the two types of NS&I Savings Certificate available and how did they work?
- Fixed interest - lump sum investment, held for up to 5 years, tax-free interest
- Index-linked, similar to above but index-linked
Who can reinvest with a new NS&I savings certificate?
Anyone with a maturing certificate.
Otherwise they were stopped for new investors in 2011.
NS&I Green Savings Bonds
1. Min. age to open
2. How is interest taxed
3. Withdrawal limits
4. Min. and max. saving limits
- 16 (must be done online)
- Savings income (only when bond matures)
- Not permitted until bond matures at 3 years
- £100 min. and £100,000 max (£200k joint acc.)
NS&I Guaranteed Income and Growth Bonds
Which one pays interest and which reinvests?
Income - interest (income to the investor)
Growth - reinvests (to ‘grow’ the fund)
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
- 16 (must be done online)
- Savings income
- Not permitted until bond matures at 1 year
- £500 min. and £1m max (£2m joint acc.)
When is interest credited on the NS&I Direct ISA?
5 April, annually
What are the minimum and maximum limits on an NS&I Direct ISA?
How much can be invested each time after the initial deposit?
Min. £1, no max.
Further deposits of £1 can be made.
Which taxpayers are more likley to benefit from having NS&I Premium Bonds?
And why?
Higher and additional rate
Because it’s tax-free so in theory, an extra allowance they can use in addition to PSA
What do the monthly prized range from with NS&I Premium Bonds, and what is their tax treatment?
£25 - £1m, all tax-free
NS&I Premium Bonds
1. Min. age to open
2. Withdrawal limits
3. Min. and max. saving limits
- 16, or under 16 if opened on behalf of a child
- Can withdraw anything at any time, no penalties
- The minimum holding is £25, with a maximum of £50,000.
How is income from fixed-interest securities taxed?
How often is interest paid and it is gross or net?
Savings income
Twice a year, gross
What are two ways in which you can dispose of a gilt?
- Hold until maturity
- Sold on stock exchange before maturity
What is the CGT treatment of gilts?
Exempt
What type of bonds are debentures and loan stock?
Corporate bonds
Can a company repay their loan through a corporate bond earlier than maturity?
Yes, if it wants to
Corporate bonds
1. Is interest paid gross or net?
2. How is interest taxed?
- Gross
- Savings income
What is the difference between a corporate bond and a qualifying corporate bond when it comes to CGT?
Qualifying is exempt
What is a deeply discounted security?
‘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.
What is the CGT treatment for a deeply discounted security?
Exempt as it’s deemed a qualifying bond
How are deeply discounted securities taxed to the investor?
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.
Local authority bonds are taxed as savings income and paid net, true or false?
False - taxed as savings income but paid gross (like nearly all savings income)
What is the GCT treatment on local authority bonds?
Exempt as it’s deemed a qualifying bond
Is interest from an offshore bank account taxable?
Yes
For which NS&I product currently on offer is the interest tax free?
Direct ISA
