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Investment Plans
Summary
Unit Trusts This type of collective investment, often called a pooled investment, has no limits to the number of units which can be issued. The price reflects the value of the underlying assets of the fund. There are no restrictions on the amounts that can be invested or the number of investments held, nor is there a maturity date.
Open Ended Investment Company Schemes Similar in some ways to investment trusts, open ended investment company schemes (OEICS) are companies which issue shares. The main difference is that the company is open ended and has no ‘winding up’ date and also there is no restriction on the number of shares which can be issued, which reflect the value of the underlying assets of the fund.
Individual Savings Accounts
Saving in an ISA means you do not have to pay any further tax on the income received within the ISA. You can save up to £10,200 each tax year. The full £10,200 can be invested in a stocks and shares ISA with one provider or up to £5,100 can be saved in a cash ISA with one provider, with the remaining being saved in a stocks and shares ISA with either the same, or another provider.
From 6 April 2011 the ISA limits will be increased in line with the Retail Prices Index on an annual basis.
There are two types of ISA:
·Cash
·Stocks and Shares
You can save in two separate ISAs in any one tax year: one cash ISA and one stocks and shares ISA. You cannot save in more than one cash ISA or more than one stocks and shares ISA in the same tax year.
The benefits of ISA’s:
·No further tax is payable on the income received from ISA savings and investments. However, any UK dividend income received within a stocks and shares ISA will be subject to a 10 per cent tax credit - this is not Income Tax and is not repayable.
·No tax is payable on capital gains arising on investments.
·Money can be taken out at any time (but some accounts have a notice period).
·The ISA does not have to be reported on a personal tax return.
Insurance Bonds Insurance bonds are, in fact, a form of life assurance which have a nominal death benefit, usually only 101% of the value of the fund. They are usually without a fixed term and the investment funds can be diversified between a number of funds and usually can be changed during the life of the bond. Basic rate tax is deemed to have been paid on the funds. Regular withdrawals from a bond can provide an ‘income’, and providing these do not exceed 5% each year (until the initial value has been exhausted), there will be no immediate tax liability on the income.
Offshore Bonds Offshore life products can be used for income tax deferral, as a capital gains tax shelter, and for inheritance tax mitigation, as can onshore life bond. However, the offshore variety may offer advantages for certain investers depending on their personal circumstances and tax status.
The primary advantage over the onshore life products is its tax efficient nature. Interest on deposits and many fixed interest investments is paid gross; dividends on equity holdings are similarly received gross, although with-holding tax may be deducted depending on the source of the dividend; and capital gains roll up gross within investment funds. Upon encashment any gain made will be liable to income tax if you are a UK resident.
These vehicles can be very attractive to both expatriates and residents of the United Kingdom.
Please note: Not all Offshore plans are regulated by the Financial Services Authority.
ISA transfers Once an investor has chosen an ISA provider or a particular fund, there is no reason why this cannot be transferred to another provider and fund at a later date. This may involve a charge with some providers. Investment Trusts Investment trusts are, in fact, companies which issue a specific number of shares. The price of the shares is determined by the demand and may be more or less than the value of the underlying assets of the fund. Many Investment Trust companies will have a fixed ‘winding up’ date, but there is no restriction on the amount that can be invested or the number of investments which can be held.
This summary in no way constitutes the complete explanation of investment plans or how they may suit you. For further details of investment plans and how these may help your personal circumstances please seek independent advice. Financial Services Authority does not regulate taxation.
