Templar Financial Associates Ltd
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Different types of asset-backed investments include:
Shares are issued by companies who wish to raise money.
The best known shares are bought and sold daily on international Stock Markets. There are several different types of share but the most common are simply called ‘ordinary shares’. A shareholder will normally receive a dividend twice a year which is related to the profitability of the company.
Please note past performance is not a guide to future performance.
Selling shares may produce a capital gain for investors which is potentially liable to capital gains tax.
Investors may pay personal tax on income or gains unless the shares are held within and ISA.
Gilt-edged securities (Gilts)
Gilts represent borrowing by the Government and, therefore, have the highest degree of security.
An investor in Gilts will be guaranteed a fixed yield (or coupon) for the life of the stock. This is normally paid twice a year. Gilts can be purchased from the Bank of England or a stockbroker.
Gilts are traded daily and the market price fluctuates in response to market sentiment and current prevailing interest rates.
There is no tax to pay on any capital gains made on Gilts.
Some Gilts are index-linked which means that the redemption values and the annual interest are increased in line with the Retail Prices Index. This protects the investor against inflation.
Friendly Societies offer 10-year qualifying savings plans, which invest in cash deposits, managed funds or with profits funds. They are free of Capital Gains Tax and income tax.
The monthly limit for tax free status is £25, making a total contribution of £300pa. The maximum if paid by lump sum is £270.
Unit Trusts are pooled investment vehicles. This means relatively small sums from clients are pooled to form a large fund, which is able to invest in a broad spread of stocks and shares and other assets.
Because they invest in stocks and shares, unit trusts must be viewed as medium to long-term investments. This means that they should be held for at least five years, preferably longer, in order that the investor can potentially benefit from capital growth and a rising income.
Unit trusts offer investors significant advantages. The fund can invest in a broad spread of stocks and shares which brings greater security than investments into a individual company’s shares.
Each fund will benefit from the expertise of a professional fund manager who takes on the responsibility of the day to day investment decisions. Unit trusts offer a simple way of benefiting from an investment in the stock market. They avoid the complications and many of the risks associated with a person buying and selling individual stocks and shares.
If, when units are sold, their value is greater than when they were purchased the investor will have made a capital gain. This is potentially liable to Capital Gains Tax if it exceeds the investor’s exemptions and reliefs.
From 6 April 2017 individuals will now be able invest up to £20,000 into either a cash ISA or a Stocks and Shares ISA with transfers now being allowed between the two, previously transfers were not allowed from Stocks and Shares ISAs to cash ISAs.
This allowance can be used each tax year.
Investment trusts are limited companies and their company directors are usually fund managers or investment experts. Their profit is made for their shareholders by buying and selling financial instruments, such as stocks and shares.
Investment trusts are closed ended investments and should they wish to acquire more investments than their share capital allows, they can benefit by ‘gearing’.
This simply means that they can borrow money to invest. Therefore a ‘highly geared’ investment trust would have large borrowings and could be considered high risk, especially in a falling (bear) market place.
All the tax implications for investment trusts are the same as shares as this is actually what the investor buys.
Open Ended Investment Companies (OEICs)
An OEIC could be considered a hybrid between a unit trust and an investment trust company.
OEICs benefit from single pricing, rather than the UK’s traditional dual pricing (the bid offer spread). They have the same buying and selling price with initial, exit and annual management charges expressed separately.
A guide to their basic structure is:
All the tax implications for OEICs are the same as shares, as this is actually what the investor owns.
Investment bonds are single premium life assurance policies. There is a high allocation to investment and relatively low life cover. They are pooled investments whereby relatively small amounts of individual investor’s money will be invested to create large pooled funds, maintained by a life assurance company.
Investments can be spread across a broad range of assets including property, shares, Government stocks and companies’ loan stocks, thereby reducing the risk for investors. It is, however, very important to realise that investment bonds are medium to long-term investments. As such they should not be considered for periods of less than five years.
It is normally possible for investors to withdraw money from an investment bond, either on a regular or irregular basis, without bringing the bond to an end. This is important where income is a priority.
The value of your investment can go down as well as up and you may get back less than you invested. Tax concessions are not guaranteed and may change.
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