Top-up Flashcards
Investment limits for
EIS
SEED
VCT
EIS - 1m
SEED - £100k
VCT - £200k
Income tax relief and tax relief clawback length
EIS - 30% - 3yrs
SEED - 50% - 5yrs
VCT - 30% - 3yrs
Tax free dividends for
EIS
SEED
VCT
Yes for all but limit of £200k for SEED
Tax free capital gains for EIS, SEED, VCT?
EIS - yes after 3yrs
SEED - yes after 3yrs
VCT - yes
Tax relief for losses and IHT business relief for EIS, SEED, VCT
EIS - yes
SEED - yes
VCT - no
Top down portfolio construction
- Asset allocation
- Geographical spread
- Sector weighting
- Choose stocks and preferences
When should an investment be replaced?
Only when genuine underperformance is shown or circumstances changed making them unsuitable
Discretionary management service
Gives advisor authority to carry out trades on your behalf within your risk profile
Advisory management service
Must get clients permission for each trade
Capital preservation investment objective
Risk averse and wants an investment equal to or above inflation
Capital appreciation investment objective
Growth is the priority
Total return investment objective
Long term aspiration for growth from gains and income
What is stochastic model sensitive to?
Small changes to input data
Within a split capital investment trust that has zero dividend preference shares. This may contain what?
Negative hurdle rate
How do investment platforms help with tax?
They produce annual consolidated statements each year
Both strategic and tactical asset allocation are based upon what?
Capital preservation
Man advantage to a client of using a trading platform?
Simplified admin.
High risk has what relationship with volatility
High volatility and positive correlation
Correlation co-efficient being positive or negative has what effect on volatility
Positive - reduced volatility
Negative - increased volatility
Min. Guaranteed earnings in a cash ISA?
95% within a 5yr period
Money market funds and short term money market funds weighted average maturity and weighted average life
Money market funds weighted average maturity of 6 months and weighted average life 12 months
Short term money market funds weighted average maturity of 60 days and weighted average life of 120 days
Bond pricing. Payment will be quoted at the mid price but what will buyers and sellers pay/receive
Sellers receive less than mid price
Buyers pay more than mid price
A 10yr GILT could be stripped into how many payments and why?
21 because of 20half yearly interest payments then payment on redemption
FTB SDLT max. allowance
£425k
SDLT on rent
1% on rent excess of NPV exceeding £125k for resi.
1% on rent excess of NPV exceeding £150k for commercial upto £5m then 2% thereafter
Second homes or BTL purchases are subject to X% surcharge for properties purchased at or above £X
3% for properties purchased at £40k or more. So 3% on top of all bands including 0%
What is an added benefit if you have it within a commercial property?
A tenant
Monetary and fiscal policy for inflation
Monetary - supply of money supply and interest rates
Fiscal - taxation and gov. Spending
Tightening or easing monetary policy means what and what effect?
Tightening - increasing rates - reduced general wealth and fall in asset prices
Easing - rise in general wealth and increase in asset prices
Quantitative easing
Releasing money so buys back some GILT’s so releases money to public and encourages public spending
A countries current and capital account
Current - goods and services, interest, dividends and rent
Capital - investments and loans
What type of risk cannot be removed by diversification?
Systematic
Efficient frontier
Helps an investor find out if they’re exposing themselves to unnecessary risk
CAPM is based upon what theory?
Modern portfolio theory
CAPM is for what
Investor would want to be compensated for amount of risk taken over risk free return
Tendencies of people based upon prospect theory
People hold onto losses hoping they’ll rise again
Over confidence for own skills and underestimate likelihood of bad outcomes
Stochastic modelling for risk
Plots out range of possible returns using asset allocation based upon risk profile
Positive screening
Negative screening
Neutral approach
Pos. - seeks out firms making an effort to be as ethical as possible but has a tolerance for unethical practices
Neg. - avoids unethical practices
Neut. - choosing socially responsible firms
Investment objectives for a client are set out in what?
Investment policy statement
Stratified sampling for index tracker funds
Hold sample of index funds but not full replication
Synthetic fund for index tracker funds
Computerised model buying and selling stocks within the index
What states an investment trusts restrictions?
Articles of association
Conventional and Split capital investment trust
Conventional - one main class of shares
Split capital - multiple classes of shares so have different priorities on wind-up
Hurdle rate
Rate which must grow at to repay each class of shares at wind-up
Rate of tax for dividends after tax exemption of £X?
Tax exemption of £2k
Basic rate - 8.75%
Higher rate - 33.75%
Additional rate - 39.35%
Costs higher or lower for an investment trust compared to an OEIC or Unit trust?
Lower
Non profit and with profit policy
Non profit - pays a fixed sum assured on death providing premiums are paid
With profit - sum assured increases each year as receives bonuses
Traditional with profits
Low cost with profits
Low start, low cost with profits
Traditional - receive bonuses on top of sum assured
Low costs - has a lower investment sum assured than death benefit. Fixed death benefit with a DTA and investment sum assured rises with bonuses paid along with DTA aims to have X amount upon death when combined
Low start, low cost with profits - Low costs - same as low cost but premiums start low and increase over time
Unit linked bonds
Measured by number of units held
No maturity date so has a whole of life policy
Not tradeable an must be sold back to life company
Are unit linked bonds tradable?
No. Must be sold back to life company
Other than guaranteed return bonds do bonds have a term?
Usually no and can be surrendered at any time
Max. amount allowed to withdraw from a bond
5% of original investment, also cumulative
High income bond
Based on packages of derivatives but higher risk as can return less than original investment
Distribution bond
Split income received as this is paid to the investor leaving capital intact
Must have equity content of 60% and yield of atleast 110%
Guaranteed equity and protected bonds
Guaranteed return on capital of 100% for equity and 90% for protected bonds
Guarantee achieved with zero coupon bond
Segmentation
Each class of asset is identical in value and asset composition
Tracking error from fund to index is caused by what?
Charges
Exchange traded product
Aims to mirror performance of an index
Property unit trust
Property investment trust
UT - cannot borrow and must match NAV
IT - can borrow and dare price is independent to NAV
How long does a spouse or civil partner have to use allowance of deceased partner?
3yrs from date of death
HTB ISA
25% bonus paid
£12k max. investment
Max. initial contribution of £1k
Max. monthly contribution of £200
Put and call option
Put - option buyer right to sell
Call - option buyer right to buy
Structured product
If investment drops then will return money. If rises will receive growth and if rise a lot then will split gains with product runners
Zero coupon bond
gives a guarantee of return with no income
Non correlation on a table
Closest to 0
If inflation rises what will happen to the price of GILT’s?
Drop in price
What plays a major factor in sharpe ratio and CAPM?
Sharpe - standard deviation
CAPM - Beta (benchmark)
Bond taxation rules
5% cumulative withdrawal limit then income tax paid at 20% less than their bracket
Unit trust, OEIC & investment trust income tax and CGT
Usual dividend rules, CGT and income tax after PSA
Offshore reporting and non-reporting fund tax rules
Offshore reporting - usual rules apply but pay CGT not income tax
Non-reporting fund - Pay CGT but at income tax rates with no exemptions allowed
Bond taxation calculation help
Can withdraw cumulative 5%
Then charged income tax but -20% and consider all costs and anything already taxed
SDLT for non UK residents
2% surcharge on purchases over £40k
Pg. 33, 90 & 53
AIM benefit when holding shares
Exempt from IHT after 2yrs of holding
Clean price and dirty price
Clean - interest not included
Dirty - interest not included for buyer
Alpha
Shows fund manager ability to pick good investments
FTSE AIM has what within it?
FTSE 5, 100, all-share and specialist stocks
What is FTSE AIM?
Peivides primary and secondary market for smaller or newer companies
2 Benefits to FTSE AIM
Less costly and less rules
Effective annual rate when relevant to compound interest
Nominal rate compounded (the actual rate of interest from the beginning to now)
Nominal returns
Real returns
Nominal - ignores inflation
Real - accounts for inflation
In a deflationary environment what will happen to the value of real value of money?
Increase over time
Fettered and unfettered funds
Fettered - funds from host provider only
unfettered - funds from other companies can be used
Financial investments are designed to stimulate what?
Demand
Non resi. property SDLT
extra 2% bracket between £150k - £250k
