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Flashcards in 2 - Equities and Property Deck (14)
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What are the transaction tax costs when trading equities and who pays them?

Are there any exceptions?

Stamp duty/SDRT at 0.5% paid by the buyer (rounded up to nearest £5 for paper transactions).

Panel on Takeovers and Mergers charge of £1 paid by BOTH seller and buyer if transactions is over £10k.

EXCEPTIONS: No Stamp Duty paid on AIM shares


Preference Shares

What are they?

What return do they pay?

Where do they rank if the company goes bust?

Preference shares are shares that pay fixed returns instead of dividends.  These fixed returns must be paid before any dividends are distributed to ordinary shareholders.

They rank below bonds but above ordinary shares if the company goes bust.


Preference Shares

What is a cumulative preference share?

What is a participating preference share?

What is a redeemable preference share?

What is a convertible preference share?

Cumulative preference shares have missed dividend payments carried forwards, if you have non-cumulative pref shares any missed payments are lost forever.

Participating preference shares receive some of the profits on top of their fixed dividends.

Redeemable preference shares can be redeemed for cash at a specified date.

Convertible can be exchanged for ordinary shares.


What taxes do you pay on dividends?

Everybody gets £5k of dividends tax free!

Then pay 0% / 7.5% / 32.5% / 38.1%


Rights Issue

What is it?

Will the rights price be above or below market price of the shares?

What effect does it have on the share price?

A rights issue is where a company raises cash by giving all shareholders the right to buy extra shares at a given rights price.

The number of new shares you can buy is based on how many you already have (eg 2 shares for every 5 you own).

The rights price will be below the market price, otherwise nobody would buy them!

Afterwards the company will have more cash, but will be split over a larger number of shares, so the "ex-rights price" of the shares will be lower.


Bonus Shares

What are they?

Also known as what?

Bonus shares are additional shares given for free to existing shareholders.

Also known as a scrip issue.

They don't really change anything, except the price per share goes down because there is a higher number of shares.


Share Splits

How does this work?

Every share is split into a larger number of shares.

Similar to bonus issues this doesn't change anything, the value of the company is the same, but the number of shares is bigger and the price per share is lower.

This is used when the share price is getting too big (share prices of over £100 are annoying!).



Which shares are in the FTSE all share index?

Are any shares on the main stock exchange not in the FTSE all share?

FTSE All Share = FTSE 350 + FTSE Small Cap

Any shares on the main stock exchange which aren't in the all share appear in the FTSE Fledgling index.



How does this correlate to other investments?

How is it affected by inflation?

Property doesn't tend to move in line with other markets so it's potentially a good way of diversifying investments.

Asset prices tend to grow with inflation so it's also a good way to hedge against inflation risk.



Residential Stamp Duty Land Tax Rates

What about second homes/buy to let properties?

  • 0 - 125k:         0%
  • 125k - 250k:   2%
  • 250k - 925k:  5%
  • 925k - 1.5m:   10%
  • 1.5m+:             12%

For second homes/buy to let you pay an extra 3% of the whole property price.



Commerical SDLT rates

What about if you just take a long term lease instead of buying?

  • 0-150k:            0%
  • 150k - 250k:   2%
  • 250k+:             5%

If you take out a long term lease you have to calculate the NPV (i.e. discounting) all of the rental payments and pay SDLT on the total net present value of all rental payments.



What is rent a room relief and it's restrictions?


Rent a room relief says you can receive up to £7,500 for renting out one furnished room in your house while you live there.

Can only be one room per house, so if somebody sub-lets you have to split the allowance.

The alternative is to treat it like normal rental income. This means you can deduct all expenses from the rent and pay tax on the net income.



What are the SDLT rates on residential property?

What about if it's a second home?

  • 0 - 125k            0%
  • 125k - 250k     2%
  • 250k - 925k     5%
  • 925k - 1.5m      10%
  • 1.5m+                12%

Second home is 3% more.



What are the SDLT rates on commercial property?

  • 0 - 125k          0%
  • 125k - 250k   2%
  • 250k +            5%

Basically the same as residential property, except the highest rate is 5%.