Topic 9 Flashcards
Describe the characteristics of a stock and shares ISA
Stock and share ISA allow individuals to invest in many areas which include:
Share and corporate bonds- this allows the invest to invest in high return company shares and bonds in recognised global stock exchanges.
government securities (gilts)- Bonds which are issued in the european areas.
Uk authorised open ended investment companies and unit trust which pool together investments
Uk listed investment trust- theses are close ended funds which are leveraged on the stock market.
life assurance policies
stake holder investment products medium to short term
Describe the characteristics of a Cash ISA
Theses cash ISAs are guaranteed cash with tax free interest but at lower rates
Bank and building societies deposit accounts these are the saving accounts offered by tradition institutions with low rates of interest .
Money market funds these are the short term investments into debt securities like treasury bills offering better liquidity and slightly higher returns.
Stakeholder cash deposit products which are low risk and offer low returns for the risk adverse investor.
Describe the characteristics of a innovative finance ISA
This is for an alternate investment needing an ISA such as
Peer to Peer lending which is the absence of an intermediary with higher returns and higher risks
Long term asset funds- these are long term investment funds such as a house which are illiquid
Describe the characteristics of a Help to Buy ISA
This is aimed at first time buyers in the uk who are aged from 16 onwards until completion and has ended on the 30th of nov 2019 and cannot be accessed anymore
This ISA had a 25% bonus from the government with the initial deposit of up to 1,200 and monthly deposits of £1 to £200 with the cap on minimum savings for the bonus to be £1,600 this would have been avaliable for houses up to $450,000 in London and £250,000 everywhere else
Describe the characteristics of a Lifetime ISA
This is an ISA introduced in april of 2017 allowing those aged 18-39 to open this ISA with 25% gov bonus on a saving accounts of 4,000 annually, contributions stop at 50.
This ISA is used for first time buying on houses up to £450,000 and for retirement pensions.
These funds can also be invested in the same assets as stock and share or cash ISAs
If a with-drawl is made prematurely will be issued a 25% penalty unless the retirement is after 60 or terminal illness
What is a subscription limit on ISAs
This is to avoid the advantage of the ISAs to exploited by the wealthy, there is a cap on the max deposits made across all ISAs which will negate tax avoidance. This cap is £20,000 and can be distributed across however the investor would like.
The eligibility of the investors must be a uk resident/tax payer as well as an individual with no joint accounts.
If the account holder dies then the account will continoue the tax benefits until the account is closed/ the estate is settled or it can stay open until three years and one day.
The spouse or civil partner of the deceased can claim aps allowance on the value of the accounts in question.
How are with-drawls and transfers handled across ISAs
Flexible withdrawals are offered in cash, alternate investors and some share and company bonds ISAs which allow the funds to be replaced within the same tax year without a tax hit.
Transfer between ISAs are unaffected however the lifetime ISA will see a penalty of 25% if before the age of 60 and some may restrict and charge fees.
What are the tax reliefs on ISAs
Tax relief is applicable to all ISAs as their dividends, interest and gains are not taxed at all.
What are the characteristics of a Junior ISA
The Junior ISA was introduced in November of 2011 to replace the child trust funds which had been abolished by the government so that under 18s could benefit from the tax free savings.
The junior ISA can be two types of ISA one being a stock and company bonds ISA or a Cash ISA or could be divided and a child could use both as the cash ISA is seen a low risk option with low return whereas the opposite for the Stock and shares ISA is true.
There are limits set on the ISAs to stop high wealth individuals from benefitting from tax avoidance as well as this the account will automatically be turned into an adult ISA with full access when they turn 18 but investment can start at 16.
Describe the characteristics of a Child trust fund
This was an initiative which was set up by the government for children born between september 2002 and september of 2011. although they have been abolished, they can still active accounts to this day.
They are very similar to a junior ISA in the way that the account can vary from a deposit account which is low risk with fixed/variable interest, a share account which is investments in share and stock with higher risks and finally a stakeholder account which was aimed to diversify the risk through having a larger portfolio. However this was under strict government guidelines with a charge of 1.5% along with the investments being low risk once the account matures at 18.
Just like a Junior ISA there are limits set by the government which change annually as well an automatic switch to an adult ISA at 18 it can also not be withdrawn from until then.
Describe the characteristics of a venture capitalist trust
A venture capitalist trust is a bunch of investors whom put down significant funds for smaller companies which are high risk
The tax benefits from being a venture capitalist is that the income from investments made up to 200,000 and held for a minimum of three years are 30% tax free as well as all dividends are tax free and there is no capital gains tax on these investments.
The requirements are that the investment is subject to strict HMRC guidelines and approved by them as well as 80% of the funds made must be invested within the three years.
Describe the characteristics of enterprise investment schemes
This is the direct investment into a high risk growing small company which can be rewarded with major tax benefits if the investor is willing to take on the risk.
There is 30% tax free of investments made of £1,000,000 or £2,000,000 if the company is a knowledge intensive company. As well as a capital gains tax deferral for reinvestments or no capital gains tax for shares held for more than three years
However there is strict HMRC guidelines to be followed as the company may not have gross assets above £15,000,000 or more than 250 employees as well as not being a company in financial or property sector.
Describe the characteristics of seed enterprise investment scheme
This is the investment directly of even newer and riskier companies such as start ups who have less than 25 employees and have been trading for less than 2 years.
The tax reliefs on capital gains tax are the same as the enterprise investment scheme and there is a 50% income tax relif for investments up to £100,000 yearly.
However there is a funding cap for these businesses of £150,000
