Chapter 9 - Collective Investments

Question 1

ISAs

Answer 1

Tax wrapper
No CGT, income tax
£15240 and £4080.

APS - can inherit from deceased spouse or civil partner.
Can be with existing provider or transferred.
Must be claimed within 3 years of death.

Help To Buy ISAs
£3400 in year one and £2400 thereafter.
Govt adds 25% to max of £3000.
Purchase price of property must be less than £250k (or £450k in London)
One per person
Cannot have cash and HTB on same year but can have S&S.
Person must open account themselves.

Lifetimes ISAs
Between 18 and 40. Savings in before 50th birthday, govt gives 25%.
Max £4000 per annum
Can be used as deposit for first home or leave until 60th birthday and withdraw tax free
If outside this, 5% charge to withdraw.
If this ISA and HTB, can only use one to buy house.

Innovative Finance ISAs
Over 18s for P@P loans
Max investment same as others

Question 2

Unit Trusts

Answer 2

Open ended
Can create more units
Daily bought and sold. Bid offer spread 5%.
Priced re net asset value
Borrowing limited to 10% only
Can only have income or distribution units
FCA rules ensure sufficient diversification

Question 3

Taxation of Unit Trusts

Answer 3

Principally subject to corporation tax re income

Question 4

Equalisation

Answer 4

Income distributed half yearly - balance is equalisation payment. Partial refund of original capital
Achieves fairness for investors

Income allocations and distributions - net income allocated at least annually

Reinvestment of dividends - still counts as income for tax treatment.

Inside estate for IHT.

Income tax..changed. First £5k of dividends tax free, then 7.5% on balance. Then 20% at source re savings (additional 20% or 25% re HRT or ART) allowance. Then, 10% or 20% if gains exceed exemption re BRT, HRT or ART.

CGT Planning. B&B-ing..no more. 30 day window..ignored.

Question 5

OEICs

Answer 5

Similar to UT, legal structure of company.
Can create more shares.
Single priced. Initial or exit charge can occur.
Borrowing limited to 10%
Can have multiple share classes, unlike UT.
Tax same as UTs.

Question 6

Investment Trusts

Answer 6

Closed ended. Fixed amount of shares.
Run by board of directors.
No borrowing limits.
Higher risk re gearing.
Price can rise and fall.

Narrowing discount can enhance results if popularity rises.

Widening discount has reverse effect. Bigger loos if stick market falls and discounts widen too.

Share classes
Ordinary - main type
Preference - zero dividend preference (zeros), good for HRT
Split capital shares.

Hurdle rate is annual rate by which investments must grow in future.

AMC - pays for external management or staff costs of fund.