Specialist products Flashcards
Investment Trusts
Collective investment scheme
PLC
Issues shares on the stock market
Closed ended
Safeguarded by board of directors
Managed by ACD (Authorised Corporate Director)
Protected by company law, directors and FCA
exempt from corporation tax
Trade a premium or discount to NAV
priced in real time
lower charges that Unit Trust/OEIC
Can gear significantly more than UT/OEIC
Often used for Property and Private Equity share investments
Asset cover and Hurdle rates
Taxed the same way as UT/OEICs
Features of an EIS - think Dragons Den!
Direct investment into small unlisted companies (or AIM)
High risk
Max inv £1m per tax year (or £2m knowledge intensive industry)
Tax benefits only for new issued shares
Qualifying company must have no more than £15m assets before EIS
CGT exempt after 3 years - reinvestment relief available
Income tax relief 30% as tax reducer if hold for 3 years
carry back income tax relief to previous tax year
loss relief available
Buz relief after 2 years so free from IHT
Features of a SEIS
Direct investment into small unlisted companies
Greater risk than EIS as essentially start up’s
Max inv £100k per tax year
Tax benefits only for new issued shares
Qualifying company must have no more than £200k assets, less than 2 years old and less than 25 employees
CGT exempt after 3 years - reinvestment relief available for 50% of gains
Income tax relief at 50% as a tax reducer if hold for 3 years
carry back income tax relief to previous tax year
loss relief available
Buz relief after 2 years so free from IHT
Features of a VCT
Collective investment similar to an Investment Trust
Must be listed on stock exchange
Fund manager appointed who would invest mostly into private equity shares
At least 70% of its investments, by value, must be in newly issued shares in qualifying unlisted trading companies
At least 10% into any one company must be in ordinary shares
Max investment £200k per tax year
Lower risk than EIS as money diversified over many companies
Can be difficult to trade/illiquid
No tax benefits paid to those bought on secondary market
so often discounted to NAV when sold
CGT exempt immediately (think no CGT on a VCT), no reinvestment relief
Income tax relief at 30% as a tax reducer if held for 5 years (think V roman is 5)
No business relief so forms part of estate for IHT
Features of a REIT - Real Estate Investment Trust
Collective investment scheme - closed ended
A type of Investment Trust
PLC structure
Purchase of share not physical property
Made up of TWO sub-sections;
Ring fenced (property element - must be main element, min 75%, exempt from corporation tax, 90% of rental income must be distributed within 12 months)
Non ring-fenced (property management service, subject to corporation tax
Rental income must be over the cost of gearing by 125%
Can be placed within an ISA wrapper
CGT at usual rates
Income tax on ring fenced section - categorised as non-savings/PID so cannot use PSA/DA
Paid net of basic rate tax, reclaimable by non taxpayer, extra tax for HRT and ART
Income tax on non-ring fenced section - dividend income, paid gross, can use dividend allowance
Features of a PAIF (Property authorised investment fund)
Basically an open ended REIT with a cash element for liquidity
Collective investment scheme - open ended
Not stock market listed
Purchase of a share not physical property
made up of THREE sub-sections;
Ring fenced (property element - must be main element, min 60%, exempt from corporation tax, 90% of rental income must be distributed within 12 months)
Non-ring fenced (property managed service, subject to corporation tax)
Cash element (for liquidity as per all open-ended property funds)
Rental income must be over the cost of gearing by 125%
Can be placed in an ISA wrapper
CGT rates as usual
Income tax on ring fenced section - categorised as non-savings/PID so cannot use PSA/DA
Paid net of basic rate tax, reclaimable by non taxpayer, extra tax for HRT and ART
Income tax on non-ring fenced section - dividend income, paid gross, can use dividend allowance
Cash element - savings income paid gross, can use PSA
ETF/ETC/ETN - Exchange traded investments
Stockmarket traded tracker funds traded in real time
Open ended, low cost
Exempt from Stamp Duty Reserve Tax
ETFs - Track stockmarket index ie FTSE 100, often replicating funds
ETC (commodities) often track prices of commodities ie oil
ETN (Notes) similar to ETF, issued by banks, synthetic funds, exposed to counterparty risk
CGT on gains unless in an ISA
Features and types of Structured products
Short term trackers
base their return on performance of an index ie FTSE 100
Can be deposit based or structured capital at risk (SCARP) based
Deposit based;
Covered by FSCS
Life insurance based structure
can offer hard (100%) and soft (less than 100%) protection
returns based on movements in the index
usually have a return range ie between 100% and 125% of amount invested
3 to 7 year term
underpinned by a zer0-coupon bond and a call option
SCARP - not covered by FSCS, risk of capital loss, inflexible structure
