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CISI Inv Risk & Tax > Investment Products - 2 > Flashcards

Investment Products - 2 Flashcards

1
Q

What is the maximum contribution to an ISA per year?

A

£20K

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2
Q

What is the British ISA?

A

allows investors to invest an additional £5,000 into UK equities, on top of the existing £20,000 allowance

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3
Q

What are the restrictions on switching ISAs between managers?

A
  • the current tax year’s subscription must be transferred in its entirety if an investor wants to transfer the current tax year’s ISA subscription,
  • If investors transfer savings from a cash ISA to another cash ISA, the transfer must usually be completed within 15 business days of it being requested. Any other type of account transfer must usually be completed within 30 business days of the request
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4
Q

What are the rules regarding Additional Permitted Subscriptions to ISAs

A
  • Additional permitted subscriptions (APS) can be made to a surviving spouse or civil partner of a deceased ISA holder provided the deceased and the survivor were living together at the date of death.
  • Since 2018, the APS is the higher of cash and/or investments passed on, or the value of the ISA on the date of death.
  • A non-resident can make an APS.
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5
Q

Are nil paid rights, warrants, future and share options allowed in an ISA?

A

No.

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6
Q

What are Lifetime ISAs, the maximum contribution per year and how much does the government contribute?

A
  • Adults between the ages of 18 and 40 are eligible to open a LISA
  • The annual subscription limit for a LISA in 2024–25 is £4,000, which counts as part of the ISA allowance; thus, if someone contributes the maximum of £4,000 into a LISA, they can contribute up to £16,000 into other ISAs.
  • Up to the age of 50, they receive an annual government bonus of 25%, which is paid monthly.
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7
Q

How can LISA funds be used and what are the penalties for redemption for other reasons?

A

Savings invested in a lifetime LISA can be withdrawn at any time, but will be subject to a 25% charge unless:

  • the withdrawals are to help buy a first home in the UK as the only residence a person will live in, worth up to £450,000 with a mortgage
  • the withdrawals are made when the investor is over the age of 60, or
  • the investor becomes terminally ill.
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8
Q

How much can be contributed to a Junior ISA (JISA)?

A
  • Anyone can put money into a JISA. The limit is the same as for CTFs (£9,000 per account for 2024–25)
  • Each child can have one cash ISA and one stocks and shares JISA at any one time
  • If investment in the JISA is continued beyond the age of 18, it will automatically be converted to a conventional adult ISA.
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9
Q

How are with-profits bond returns smoothed?

A

in years when the underlying portfolio performs well, the company will hold back some of the gains, and will allocate them to policyholders to boost their returns in years when performance is poor.

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10
Q

What are chargeable events for single premium bonds?

A
  • Death.
  • Assignment for money or money’s worth.
  • Maturity.
  • Partial surrender (over a specified limit).
  • Surrender.
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11
Q

How are chargeable gains taxed?

A

This sum is taxable as if it were an addition to the policyholder’s income. However, since basic rate tax has already been deducted, it is given a tax credit. It is only higher and additional rate taxpayers (or basic rate taxpayers whose income is taken into the higher rate bracket by the chargeable gain) who have any further liability.

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12
Q

What is bootstrap funding?

A

a means to minimise the amount of outside debt and equity financing needed from banks and investors - private credit card debt is the most known form of bootstrapping

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13
Q

What is Mezzanine Financing?

A
  • A subordinated debt or a preferred equity instrument that represents a claim on a company’s assets that is senior only to that of the common shares.
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14
Q

What is the cooling off period for crowdfunding?

A

14-days

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15
Q

Which type of crowdfunding is regulated and which arent?

A
  • loan- and investment-based crowdfunding are regulated by the FCA,
  • reward- and donation-based types are not.
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16
Q

What fees do general partners in a PE firm normally charge?

A

GPs will receive a management fee of about 1.5–2.5% pa of the value of the fund, plus an incentive fee of 20% of carried interest or profits made by the fund

17
Q

How long are funds in PE funds tied up for?

A

Funds have a finite life of around ten years, which may be extended for another three years,

18
Q

What are the qualifying rules for Enterprise Investment Schemes?

5 - where, gross assets, employees, max raise, type of shares, control

A
  • the company must have a permanent establishment in the UK
  • the gross assets of the company cannot exceed £15 million immediately before any share issue and £16 million immediately after
  • the maximum number of employees is 249 (or 499 for knowledge-intensive companies only KICs)
  • the company can raise up to £12 million over its lifetime, or an enhanced £20 million for KICs.
  • the company must be unquoted when the relevant shares are issued
  • the company must not be controlled by, nor control another company
19
Q

What are the EIS scheme tax reliefs?

Income, CGT relieft, CGT disposal, IHT relief

A
  • Income tax relief = 30% on the cost of the shares up to £1 million in an EIS-qualifying company i.e. maximum tax reduction in any one year of £300,000 (£2m for KICs)
  • No CGT is liable if the shares are held for 3 years
  • CGT can also be deferred by investing in another EIS scheme withing 1 year before or 3 years after the gain
  • IHT - EIS shares qualify for business relief (BR). Thus, if they have been held for at least two years at the time of death, they can be left to beneficiaries free from IHT.
20
Q

What are the qualifying rules for Seed Enterprise Investment Schemes?

3- gross assets, employees & max cap raise

A
  • the gross assets of the company cannot exceed £350,000
  • the maximum number of employees is 24
  • the company can raise up to £250,000 over its lifetime
21
Q

What are the SEIS scheme tax reliefs?

Income tax, CGT & IHT

A
  • Income tax relief = 50% up to £200,000 in an SEIS-qualifying company i.e. max £100,000 per year
  • No CGT is liable if the shares are held for 3 years
  • IHT - SEIS shares qualify for business relief (BR). Thus, if they have been held for at least two years at the time of death, they can be left to beneficiaries free from IHT.
22
Q

What are Venture Capital Trusts?

What investments are they for & where can they be purchased?

A
  • designed to encourage individuals to invest indirectly in a range of small, higher-risk, unlisted, start-up companies that might otherwise have been unable to find the funding to grow.
  • shares in VCTs are listed and traded on the stock exchange
23
Q

What are the tax reliefs for VCTs?

Income tax, dividend tax and CGT

A
  • Income tax relief - 30% of up to £200,000 on the cost of the shares, i.e. max £60,000 per year
  • Dividend tax - no income tax to pay on dividends from ordinary shares in VCTs
  • No CGT is liable but must be held for 5 years
24
Q

What is the cheapest to deliver bonds in regard to futures?

A

the deliverable gilt with the highest implied repo rate

25
Q

What is the cheapest to deliver formula?

A

Number of contracts = Price factor × Nominal value of CTD portfolio / Nominal value of the contract

26
Q

Are structured products covered by the FSCS?

A
  • deposit-based products = YES
  • investment-based products = NO
27
Q

Whats the typical term of a principal protected investment?

A

5-7 years

28
Q

Whats the typical term of a buffer zone investment?

A

2-4 years

29
Q

Whats the typical term of a return-enhanced investment?

A

1-3 years

30
Q

How much can SSASs borrow and on what terms?

%, covenent, duration, sponsoring & total holdings

A
  • cannot exceed 50% of the scheme’s assets
  • must be secured
  • no longer than 5 years
  • Shareholdings in the sponsoring employer should not exceed 5%
  • Shares can also be bought in more than one sponsoring employer, as long as the total holdings are less than 20% and shares in any one sponsoring employer are less than 5%.
31
Q

What is the pension tapered allowance?

A
  • The annual allowance of £60,000 is tapered (ie, reduced) for high earners with a threshold income of over £200,000 (adjusted income £260,000.
  • Reduced by £1 for every £2 of adjusted income above £260,000 but the minimum annual allowance is £10,000
32
Q

How are onshore life contracts taxed?

A

Corporation Tax within the fund (this cannot be reclaimed by basic rate payers)

CISI Inv Risk & Tax (17 decks)

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