Investments

• ◊ Deposits may be held in:
• ▲ Commercial banks
• ▲ Building societies
• ▲ ISAs


• ◊ National Savings and Investments have a number of different instruments*:
• ▲ Fixed Interest Savings Certificates
• ▲ Children's Bonus Bonds
• ▲ Fixed Rate Savings Bond
• ▲ Income Bonds
• ▲ Investment account


• ◊ Asset-backed investments can be held in:


• ◊ Gilt-edged Securities
• ▲ Government guaranteed
• ▲ Fixed rate of interest or coupon
• ▲ Interest liable to income tax
• ▲ Full nominal value repaid at redemption date
• ▲ Some Gilts index linked
• ▲ No Capital Gains Tax on Gilts


• ◊ Friendly Societies


• ◊ Shares
• ▲ Issued by companies to raise money
• ▲ Dividends related to profitability
• ▲ Potential Capital Gains Tax on realised gains when shares sold


• ◊ Unit trusts
• ▲ Investors' money pooled to form large funds
• ▲ Medium to long-term investments in stocks and shares
• ▲ Broad spread for greater security
• ▲ Professional fund management
• ▲ Units priced on the basis of the value of the underlying investments
• ▲ Income distributed or re-invested
• ▲ Income liable for tax
• ▲ Potential for Capital Gains Tax


• ◊ Investment trusts
• ▲ Pooled investments run by limited companies
• ▲ Medium to long-term investments
• ▲ Professionally managed
• ▲ Income and gains liable to tax
• ▲ Stock market determines the price so shares can trade at a discount or a premium to the underlying asset value
• ▲ The funds are 'closed-ended'


• ◊ Open ended investment companies (OEICs)
• ▲ Pooled investments run by limited companies
• ▲ Medium to long term investments
• ▲ Professionally managed
• ▲ Income and gains liable to tax
• ▲ Single pricing based on the net asset value
• ▲ Charges expressed separately
• ▲ The funds are 'open-ended'


• ◊ Investment bonds
• ▲ Single premium (i.e. lump sum investment)
• ▲ Non qualifying life assurance policy
• ▲ Medium to long-term investments
• ▲ With profit or unit-linked
• ▲ Withdrawals possible
• ▲ Onshore bonds no personal liability for basic rate Income Tax or Capital Gains Tax
• ▲ With offshore bonds tax on gains can be deferred
• ▲ Withdrawals may trigger a liability to higher rates of tax or the loss of age allowance for the over 65s


• ◊ Cash ISA
The overall limit for a Cash ISA is now £20,000 with the ability to transfer Stocks and Shares ISAs into a Cash ISA and vice versa.


• ◊ Stocks and Shares ISA
With a Stocks and Shares ISA you can invest the full £20,000 per year, The Stocks and Shares ISA must include a stocks and shares element. The overall limit at which you can invest in a Stocks and Shares ISA has been raised to £20,000 per year.

Investors do not pay any personal tax on income or gains, but ISAs do pay tax on income from stocks and shares within the funds.


• ◊ Tessa Only ISA
Anyone who held Tessas will have previously converted these to TOISAs, these are no longer available and have been replaced by ISAs.



*These products and services are not regulated by the Financial Conduct Authority (FCA).

There are various deposit-based investment vehicles available in the marketplace. Many clients will have money on deposit either with a bank or building society.

Every basic rate taxpayer in the UK now has a Personal Savings Allowance of £1,000. This means that the first £1,000 of savings interest earned in a year is tax-free. If you are a higher rate taxpayer (40%), then your allowance is £500, and 45% taxpayers have no savings allowance at all.

Commercial Banks & Building Societies

Commercial Banks and Building Societies offer a variety of savings accounts. Interest often varies in line with the general level of interest rates, though accounts which pay fixed interest over a specified period may also be available. Accounts with fixed interest may restrict access to the money on deposit, typically requiring notice before withdrawal, and charging penalties for early withdrawals.

Cash ISA

You can have one cash ISA up to the limit of £20,000 each tax year with one provider.

The cash ISA can consist of money on deposit enjoying a tax-free environment. The minimum age to own a cash only ISA is 16.

Cash Junior ISAs are now also available. Your child can have a Junior ISA if they live in the UK and are under 18. At age 18 a JISA will now automatically turn into an adult ISA.

National Savings & Investments

National Savings & investments are Government backed. You can visit the NS&I website here: http://www.nsandi.com/

The Financial Conduct Authority does not regulate advice on deposits or National Savings & Investments products.

Different types of asset-backed investments include:

• ▲ Gilt-edged Securities (Gilts)
• ▲ Friendly Societies
• ▲ Shares
• ▲ Unit Trusts
• ▲ Investment Trusts
• ▲ Open Ended Investment Companies (OEICs)
• ▲ Investment Bonds
• ▲ Individual Savings Accounts (ISAs)

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.

The price quoted shows the cost of purchasing stock that will be redeemed on the redemption date at £100 (the 'par value'). The market price is usually less than the £100 par value, but if the interest rate is very attractive compared to current prevailing interest rates it may be more than £100.

Most gilt-edged securities have a redemption date (or dates) at which time the Government guarantees to repay the investor the full par value of the stock held. The investor will make a capital gain if the market price paid for the stock was below par value. If the market price was greater than par value then there will be a capital loss.

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.

* See below for tax treatment of dividends on Gilts.

Friendly Societies

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.

Shares

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. The board of directors decide how much the dividend will be in any given year. Dividends can be raised, lowered or stopped altogether, but past experience has shown that over the medium to long-term they tend to rise, thereby giving investors some protection against inflation, however this is not guaranteed.

In the short-term, share prices may fluctuate in response to changes in opinion about the company itself or the general outlook for business and the economy as a whole. However, in the medium to long-term, past experience has shown the tendency for share values to rise (i.e. capital growth). This helps protect the real value of the investor's capital against inflation.

Please note past performance is not a guide to future performance.

Selling shares may produce a capital gain for investors (i.e. the value realised at the sale may be greater than the value at the time of purchase). A capital gain realised on the sale of shares is potentially liable to Capital Gains Tax.

Capital losses may be set against gains for tax purposes. Investing in individual shares can be risky and picking the wrong company could mean losing some or all of the original investment.

Investors may pay personal tax on income or gains unless the shares are held within an ISA.

* See below for tax treatment of dividends on shares.

Unit trusts

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.

Investors' interests are protected by the terms of a trust deed which must be approved by the Financial Conduct Authority before a unit trust is authorised to accept clients' money.

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 an 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.

Units can be easily bought and sold and the prices are published in the press. The price at which units can be purchased by individuals is called the offer price which is higher than the selling or bid price. The difference between the two is known as the bid-offer spread.

The prices of units are determined by the value of the assets in the fund. As the asset value rises or falls so do the offer and bid prices of units.

Income from assets owned by a unit trust is accumulated and regularly distributed to unit holders (normally twice a year). Alternatively income may be re-invested by purchasing more units. Income, whether distributed or re-invested, is liable to income tax.

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.

* See below for tax treatment of dividends on Unit Trusts.

Investment trusts

Although branded as 'trusts', investment trusts are not subject to a trust deed like unit trusts are. However, they are a pooled investment.

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.

It is possible for shares in investment trusts to be 'trading at a premium' or 'trading at a discount' for example:

• ▲ shares in issue = 1 million.
• ▲ underlying asset values = £1 million.
• ▲ therefore each share is worth = £1.

This £1 is open to fluctuation due to influences and market sentiment just like stocks and shares. Therefore if the shares are trading at £0.95p they would be trading at a discount. If they were trading at £1.05p they would be trading at a premium.

Investment trusts are closed ended investments (unlike unit trusts which are open ended) 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.

The reason for their introduction into the UK (in 1997) is because they fall in line with their European counterparts, making the marketing of UK collective investments much easier and understandable both here and in Europe.

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:

• ▲ They are recognised incorporated companies.
• ▲ Like investment trusts, investors buy the company's shares and benefit by the income and growth, or both, of the underlying shares they are trading in.
• ▲ The trading price of OEIC shares is based on the underlying asset value, like unit trusts.
• ▲ Like unit trusts they are open ended investments that can expand and contract to meet consumer demand.
• ▲ All the tax implications for OEICs are the same as shares, as this is actually what the investor owns.

Tax Treatment of Dividends on Shares, Gilts and Unit Trusts

The first £2,000 you receive in dividends from investments is tax free. Above this, basic rate taxpayers will pay 7.5% tax on dividends, higher rate taxpayers 32.5%, and additional rate taxpayers 38.1%.

Non-savings income is normally allocated against your tax bands before savings, dividends and capital gains, so to find out at what rate interest on your savings is taxed, you must add this to your other taxable income.

Higher-rate and additional-rate taxpayers must declare any dividend income on their tax return. If you don't normally complete a tax return and are a higher-rate taxpayer who receives dividends, you need to let your tax office know.

Investment bonds

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. However it is 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.

There are two basic types of contract for investment bonds.

For the first of these (with-profits), the sum assured will be increased by bonuses related to the company's profits.

For the second type of contract (unit-linked) the life assurance company maintains a number of underlying funds which are divided into units, the value of which is determined by the value of the assets in the fund. With some contracts you can also invest into OEICs to diversify your investments even further.

The value of an investor's investment will, therefore, be determined by the value of the units in the underlying fund and the amount of units that they hold. The funds may specialise in particular areas for example, property, shares, government securities, or they may cover some or all of these in a managed or mixed fund. Income and capital growth is accumulated within the funds.

The tax on income and capital gains on onshore bonds is 'deemed' to have been paid at basic rate by Her Majesty's Revenue and Customs. As long as their capital remains invested within an investment bond, investors will have no personal liability for either income tax or capital gains tax.

When money is withdrawn (for example, to provide income) or the bond is totally surrendered there will still be no liability for either basic rate income tax or capital gains tax (the fund has already paid these). Higher rate tax payers may have to pay extra tax.

However, the rules governing bond taxation are such that higher rate tax may be reduced or even avoided altogether with careful planning.

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.

Withdrawals can be made by surrendering part of a bond, but there can be adverse tax consequences for large withdrawals, and you should seek advice before making a partial surrender. However, some bonds divide the original investment into a number of small policies. In this case withdrawals can be made by totally surrendering some of these small policies. This may have certain tax advantages for the investor.

ISAs

Available since April 1999, ISAs offer an attractive tax-efficient shelter to anyone aged 18 or over (16 or over for cash ISAs).

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.

Investors do not pay any personal tax on income or gains, but ISAs do pay tax on income from stocks and shares within the funds.

ISAs remain one of the most tax efficient solutions for your savings. Cash ISAs and Stocks and Shares ISAs have now effectively been merged, with the overall limit increased to £20,000. This can be invested in either Cash, Stocks and Shares, or a mixture of both.

You'll also be able to transfer new and previous years' ISA investments from Stocks and Shares into Cash, and vice versa, as opposed to previous rules which restricted cash ISAs being transferred into Stock and Shares ISAs.

From Autumn 2015 individuals may be able to withdraw money from some (flexible) cash ISAs and replace it in the same year without it counting towards their annual ISA subscription limit for that year. Please check with your provider.

What is an ISA?

Available since April 1999, ISAs offer an attractive tax-efficient investment to anyone aged 18 or over (16 or over for cash ISAs).

Tax must be paid on the income and profits made from investments in the stock market, either directly or through unit trusts and OEICs. ISAs, however, serve as a kind of 'wrapper' to protect savings from tax. This allows individuals to invest in a range of tax efficient savings and investments, and pay no personal tax at all on the income and/or profits received.

The Government has said that the ISA will be available indefinitely.

The main benefits of an ISA

• ▲ No personal tax (income or capital gains) on any investments in an ISA.
• ▲ Income and gains from ISAs do not need to be included in tax returns.
• ▲ Money can be withdrawn from an ISA at any time without losing the tax breaks.

How ISAs work

There are two types of ISA, which may contain one or more of the following components:

• ▲ Stocks and shares, in the form of either individual shares or bonds, or pooled investments such as open-ended investment funds, investment trusts or life assurance investments.
• ▲ Cash, usually containing a bank or building society savings account.

Junior ISAs

Junior ISAs are now also available as both stocks and shares Junior ISAs and cash Junior ISAs, the current (2018/19) contribution limit for these is £4260 per annum, Your child can have a Junior ISA if they:

• ▲ are under 18
• ▲ live in the UK
• ▲ weren't entitled to a Child Trust Fund (CTF) account

Lifetime ISA

This is slightly more complex as it is designed for two specific purposes. The first is for first-time buyers to use towards a deposit on a residential property. The second is for later life (retirement) savings once you reach age 60.

You can invest in either stocks and shares or cash and you currently (2018/19) have an investment limit of £4,000 per annum. However, as an incentive to save, the Government adds a 25% bonus each time you invest. This bonus is paid until you reach age 50.

As this is a complex product please take specialist advice before investing.