PAIF & REIT, VCT/EIS/ SEIS, Portfolio Analysis, Portfolio Attribution Flashcards
Explain the main charectristics of Real Estate Investment Trusts ‘REITS’?
- Closed ended
- UK listed
- Investment trust with public listing (incl. AIM)
- Investor owns listed shares in a product that invests in property
- Provides a liquid market in property investment with taxation broadly linked to that of direct property
- Can add diversification into property sector without the need to purchase property directly.
What are the internal sub sections of a REIT?
- Has two internal sub-sections providing two 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
Explain the ring fenced section of a REIT
- 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%
How is the ring fenced section of a REIT taxed?
Internal taxation of REIT (ring fenced business):
* Exempt from Corporation Tax on rental profits and capital gains
Taxation for investor:
* Treated as property income distribution (PID) and paid net of basic rate (20% tax)
* can be reclaimed by non taxpayers incl. ISAs and pension funds – no PSA!
Explain the non ring fenced section of a REIT
- Non ring-fenced business (other property related activities)
- Dividend paid gross
How is the non ring fenced section of a REIT taxed?
Internal taxation of REIT (non ring-fenced business):
* Corporation tax payable as usual
Taxation of investor:
* Usual dividend treatment i.e. Dividend allowances and dividend rates
Explain the main charectristics of Property Authorised Investment Funds (PAIFs) ?
- Open ended
- Must be structured as an OEIC
- Investor owns shares in a product that invests in property
- Structure is like a REIT but open-ended
- Also contains cash element to aid liquidity.
Explain the three internnal sub sections of PAIFs
- 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
Explain the ring fenced section of a PAIF
- Ring fenced property letting business must represent at least 60% of overall gross profits & 60% of fund in property
- No corporate investor can hold more than 10% of the funds Net Asset Value (NAV)
How is the ring fenced section of a PAIF taxed?
Internal taxation of PAIF (ring fenced business):
* Exempt Corporation Tax on rental profits and capital gains
Taxation of investor:
* Treated as oroperty income distribution (PID) and paid net of basic rate (20% tax)
* can be reclaimed by non taxpayers incl. ISAs and pension funds
Explain the non ring fenced section of a PAIF
- Non ring fenced business (other property related activities)
- Dividend paid gross.
How is the non ring fenced section of a PAIF taxed
Internal taxation of PAIF (non ring fenced business):
* Corporation tax payable as usual
Taxation of investor:
* Usual dividend treatment i.e. Dividend allowances and dividend rates
Explain the cash element of a PAIF
- Cash element mainly held to ensure liquidity within the PAIF as fund is open-ended
- Interest paid gross.
How is the cash element of a PAIF taxed for an investor?
- Usual interest treatment i.e. Personal Savings Allowances and savings rates
What are the main differnces between a REIT & PAIF?
REIT
* Closed ended
* Investment trust
* 75% minimum in property
* 2 income streams - Property (Ring fenced) - Dividends (Non ring fenced)
* Can be in ISA
PAIF
* Open ended
* OEIC
* 60% minimum in property
* 3 income streams - Property (Ring fenced) - Dividends (Non ring fenced) - Cash element
* Can be in ISA
What are the tax treatments for VCT, EIS and SEIS?
What does ESG stand for?
- ESG refers to a set of criteria used to assess a company’s practices that investors can use to ‘screen’ their investments
- Environmental - Factors including climate change or pollution
- Social - Factors including human rights
- Governance - Factors including Internal management and company ethos
What is positive screening?
- Selective inclusion
Funds are chosen based on:
* Most ‘green’ in their sector
* Or for their approach to the way that they do business
* When considering ESG measures and processes
_
* No exclusion of any sector such as fossil fuels / oil, more ‘socially responsible’ approach
What is negative screening?
What are the pitfalls of ethical investing?
- Less diversification and fund choice
- Increased volatility and higher risk
- Typically higher charges
- Limited growth or poorer performance
- Limited opportunity for dividend income
- Difficult to screen larger companies
- Smaller companies more likely to be included
- May be a need for higher degree monitoring
- Who defines Ethical!
What is the 5 step approach to performance attributon?
In regards to performnce attribution, explain Step 1: Select an Appropriate Benchmark
- A mix of assets which reflects the client’s long-term objectives
- It establishes a neutral / independent long-term position for the portfolio to compare with
- The portfolio manager can take a different view on asset allocation (i.e. overweight / underweight)
- The benchmark provides a sound basis for comparison against which to evaluate the investment performance of a manager
- Wealth Management Association benchmarks frequently used
In regards to performnce attribution, explain Step 2: Benchmark asset allocation
In regards to performnce attribution, explain Step 3: Benchmark Returns
