Collective Investments - Standard Products

Question 1

Features of a Unit Trust

Answer 1

Trust structure
issues units
open ended
safeguarded by trustees
managed by fund managers
protected by trust law, trustees and FCA
internal gains exempt from corporation tax
Priced and trade at their NAV
Gearing capped at 10% of fund value

Question 2

Features of an OEIC

Answer 2

Limited Company structure
issues units
open ended
safeguarded by a depositary
managed by Authorised Corporate Director (ACD)
Protected by Company law, depositary and FCA
internal gains exempt from corporation tax
Priced and trade at their NAV
Gearing capped at 10% of fund value

Question 3

Onshore Bonds

Answer 3

Life assurance based structure
Separate life assured and policy holder
separate investment and insurance element
Run under UK contract law
Protected by FCA
internal gains ARE liable to corporation tax which carries over to investor as credit equivalent to basic rate income tax
either qualifying (regular premiums) or non qualifying (lump sum)
Can be unit linked or with profits basis
Priced and trade at NAV

Question 4

Tax on Onshore Bonds

Answer 4

Chargeable events = DAMPS
Death
Assignment for money
Maturity
Part surrender
Surrender

Gains (non qualifying policies)
No CGT
Income tax charge if gain realised and investor is higher or additional rate taxpayer
20% and 25% respectfully (20% basic already paid within fund)
Or top-sliced if gain makes a basic rate payer a higher rate tax payer or a higher rate payer an additional rate payer

Income
Tax deferred if income within 5% cumulative
Excess taxed at investors marginal rate if higher/additional rate payer

NO EXTRA TAX PAYABLE IF BOND MEETS QUALIFYING RULES!