Equities And Property

Question 1

Three main types of IPO are

Answer 1

Offers for sale

Placings

Introductions

Question 2

Stamp duty / stamp duty reserve tax - on transfer of UK shares

Answer 2

0.5% paid by purchaser

Stamp duty rounded to the nearest penny

No SDRT on AIM companies

Question 3

Panel on Takeovers & Mergers levy

Answer 3

Flat charge of £1 on all trades over £10,000

Question 4

Cumulative preference share

Answer 4

Will becumulative unless specified

Any dividend shortfall carried forward must be paid before dividend declared to ordinary shareholders

Question 5

Non-cumulative preference share

Answer 5

Lose right to unpaid dividends at end of financial year

Question 6

Participating preference share

Answer 6

Pays fixed rate of dividend and

allowed to participate in profits of company

Question 7

Redeemable preference share

Answer 7

At a specified pre- determined date

Question 8

Convertible preference share

Answer 8

Can be converted into ordinary shares

Question 9

Rights issues

Answer 9

To fund expansion plans

Strengthen balance sheet

Refinance the company after a crisis

Offered first to existing shareholders

Expressed as ‘1 for 3’ or ‘2 for 5’ etc

Price for new shares below current market price

Rights issues lead to changes in share price

Price original shares fall to - theoretical ex-rights price

Question 10

Options under a rights issue

Answer 10

Subscribe for new shares and pay full amount

Sell rights in the market

Sell enough to generate cash to take up remainder

Lapse - company sells and distributes proceeds after costs

Question 11

Bonus shares

Answer 11

Used to bring share capital more in line with real worth

Reduces the share price to make it more attractive

Shares are issued fully paid to shareholders

Also called scrip issue

Question 12

Share splits

Answer 12

Also to achieve lower share price

Increases number of shares in issue by splitting par value

Question 13

Limitations of indices

Answer 13

Weighted by market capitalisation - a few companies can have substantial effects

Costs - no account of tax, buying/selling costs or management expenses

Question 14

SDLT for first time buyers?

Answer 14

No SDLT on first £300,000 of property purchase price

Over £300,000 and up to £500,000 the rate is 5%

No relief available where purchase price over £500,000

Question 15

Rent a room relief

Answer 15

Individual must also occupy property at the same time

No tax if gross rent is below £7,500

One exemption per residence

Question 16

Property income allowance

Answer 16

£1,000 for individuals

If this covers rental income it does not need to be declared/no tax due

Income over £1,000 can deduct the allowance from gross income or

Deduct actual expenses (in which case allowance will not apply)

Doesn’t also apply where rent a room relief applies

Question 17

Share price is affected by?

Answer 17

Economic and political factors: inflation, productivity, growth, government and fiscal policy

Investor sentiment

Factors specific to business: profit/dividend expectations, take over activity and management

Question 18

Preference shares

Answer 18

Usually fixed rate of dividend paid half yearly

Dividends paid before dividends on ordinary shares but only if sufficient after tax profits

Lower security than bonds but higher yields

Usually undated

Question 19

REIT

Answer 19

Ring fenced property letting business must represent at least 75% of overall gross profits & 75% of fund in property

90% of the rental profits from this part of the business must be distributed within 12 months of end of accounting period

Rental profits must cover costs of gearing by 125%

Question 20

Internal taxation(ringfenced) of REIT / Taxation for investor

Answer 20

Internal taxation (ring fenced)

Exempt fromCorporation Tax on
rental profits and capital gains

Taxation for investor:

• Treated as property
income and paid net of
basic rate (20% tax)

• can be reclaimed by non
taxpayers incl. ISAs and
pension funds

Question 21

REIT non ring fenced business

Answer 21

Dividends paid gross

Internal taxation of REIT (non ring fenced):

Corporation tax as usual

Taxation of investor:
Usual dividend treatment
Dividend allowances and rates

Question 22

PAIFs

Answer 22

Open ended

Must be structured as an OEIC

Investor owns shares in a product that invests in property

Structure is similar to a REIT but open-ended

Also contains cash element to aid liquidity.

Question 23

PAIF sub sections

Answer 23

Has three internal sub-sections providing three different income
streams

A tax-exempt (ring-fenced) section which contains the property

A non-tax exempt (non ring-fenced) section often providing property management services

A cash section to aid liquidity