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R06 CII June > Investments > Flashcards

Investments Flashcards

(56 cards)

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1
Q

What are the four investment classes?

A

-Cash
-FIS
-Property
-Shares/equities

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2
Q

What checks do you need to make regarding a client investments (12)

A

-ATR
-How much outside of risk category
-What taxpayer band are they?
-comfortable with changing ownership
-How would each investment be taxable on
-Are investments tax efficient currently?
-Have cgt allowances been utilised £6000)
-if not, any sheltered gains
-any losses brought forward (claimed within three years prior 4 including current) carried forward indefinately
-How will each investment pay out when realised?
-Past performance of existing
-How competitive is interest rates

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3
Q

Whats risks are GILTS exposed to?(3)

A

Inflation risk-Could affect buying power
Legislation-could make gilts more/less attractive
Interest rate risk-if rates fall, will affect saleability

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4
Q

What risks are AIM shares exposed to? (3)

A

Default risk-smaller companies=more chance
Liquidity risk-harder to sell due to nature
Investment risk-can fall and rise dramatically

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5
Q

What risks are unit trusts exposed to? (3)

A

Systemic-exposed to market wobbles
Investment risk-could rise of fall
Legislation-change in tax laws could affect

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6
Q

What are the two types of screening done for ESG investments?

A

-positive screening-specifically selecting companies which pro-actively protect environment/value match with client
-negative screening/count out certain types of company eg tobacco

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7
Q

What environmental factors are considered under ESG? (7)

A

-climate change policy
-green products/processes/ops
-emissions
-water usage
-waste disposal
-green employee policies
-renewable energy adoption

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8
Q

What social factors are considered under ESG? (7)

A

-Diversity and inclusion
-Treatment of employees
-Staff turnover
-Customer satisfaction
-Corporate position on wider social issues
-Supply chain ethics
-Company mission statement/purpose

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9
Q

What governance factors are considered under ESG? (7)

A

-Diversity of leadership
-Conflicts of interest
-transparency with shareholders
-Board remuneration
-pay and bonuses relating to ethical value
-Opportunities for shareholders to vote
-accuracy of accounting

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10
Q

What are OEICS (10)

A

Private limited companies
Governed by company law as opposed to trust law
Investors purchase shares (you own some of the underlying assets)
Shares created/cancelled on demand (open ended)
Assets held independantly from
Company
Operate by board of directors
Day to day running is by authorised corporate directors (decides what investments to buy/share)
Comes with 20% tax credit already paid via corporation tax
Provides dividends and interest
Switching between share classes in fund is not a disposal for cgt

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11
Q

How does the ACD of an OEIC recoup cost? (3)

A

Initial
Annual management
Exit charges

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12
Q

How is an OEIC taxed? (4)

A

Within fund=subject to corporation tax

If cash/FIS= income distribution (SRS/PSA)
If equity/shares=dividend distro £1000 allowance

With tax credit for corp tax paid

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13
Q

What is a unit trust (6)

A

-Units created/cancelled as needed
-Fund manager buys bonds/shares in funds
-Cost of unit determined by underlying fund
-Setup under trust deed as open ended investment
-unit price based on bid/offer spread
-Taxed as income/divs

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14
Q

What is bid/offer spread in relation to unit trusts (3)

A

Bid-lowest-covers cost of cancelling the unit-when demand is low cost will be close to this

Offer-highest buyer will pay based on demand

Includes initial charge

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15
Q

What is bid/offer spread in relation to unit trusts (3)

A

Bid-lowest-covers cost of cancelling the unit-when demand is low cost will be close to this

Offer-highest buyer will pay based on demand

Includes initial charge

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16
Q

What is an investment trust (9)

A

Pooled investments
For adventurous investors
A PUBLIC limited company (unlike oeics)
Close ended-cannot issue new
Articles of association outline what they invest in
Taxed as dividend
Independent board of directors
You become a shareholder by investing with them
Can borrow/gearing to enhance returns-but might not and lead to worse outcomes
Can retain up to 15% of income to smooth over the years

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17
Q

How do gilts payout?

A

Income every 6 months

Return of capita at end

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18
Q

What dictates the trade price of a gilt?

A

Dependant on how much interest (coupon) has accumulated

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19
Q

How is the price of a gilt determined and how is it issued (3)

A

Issued in £100 units

Based on supply and demand. Could be £90, could be £110

Gilts may lose selling power if interest rates rise as they get older

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20
Q

What length are Gilt maturity dates

A

5,10 and 30 years

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21
Q

What are index linked gilts v conventional gilts

A

Index linked reflects the actual borrowing rates, not just the rate set at the time like conventional

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22
Q

How does the interest element of an index linked GILT work?

A

Annual real coupon is quoted and paid half per 6 months

An adjustment factor for the increase in rpi

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23
Q

What is a gilt yield?

Study These Flashcards
A

Gilt yield is the return on the original investment as a percentage of its current price, calculated by dividing the coupon by the price paid for the bond. It’s commonly called the cost of borrowing – as it’s the amount of interest the issuer will pay.

24
Q

How do you buy and sell gilts (3)

Study These Flashcards
A

-originally from the Dmo
-then on the open market
-can buy as part of etf’s bia derivative where you take an option on rise/fall

25
Whats are aim shares and what are rhe benefits/drawbacks (7)
High risk (default and investment risk) 2 years hold IHT free -income tax relief at 30% of investment -CGT exempt -liquidity issue-harder to sell -volatile -ongoing monitoring/complex -not held in isa-potentially not tax efficient -legislation may change -alternative investment market (sub market of London stock exchange)
26
How does an investment bind drive tax efficiency in a portfolio!
5% withdrawal facility
27
What is considered a v.agressive risk profile
85% equities 10% bond 5% cash
28
What is an agressive risk profile asset mix?
75% stock 20% bonds 5% cash
29
What is a medium risk profile?
55% stock 40% bonds 5%cash
30
What is a conservative risk profile?
40% equities 40% bonds 20% cash
31
What is a very conservative risk profile mix
20% equities 50% bonda 30% cash
32
Regarding portfolio construction, what order do you pick stocks? (3)
World region (asset allocatiom) Sector Specific Stock
33
What is an investment bond (6)
Like an isa-you can out money in and take out as you wish single premium non-qualifying WOL policy Single premium-single lump sum, top ups allowed which makes it non qualifying Non qualifying-no tax benefits-tax paid when gets to investor Whole of life-no fixed term, can surrender at any time Policy-minimal cover on joint of own life Return of cash+% of growth in index Returns can be locked in if reaches certain % at any point in time 5% withdrawal allowed tax free Taxed as income
34
How does an offshore investment bond work? (4)
Gross roll up-income/gains accumulate in fund. Good for hr/ar due to timing Taxes as savings income (psa, srs) Gain is added as income May have witholding tax in country abroad
35
How does an onshore invesment bond work? (5)
Fund pays 20% due to corporation Tax Receive a 20/25% tax credit Taxed as savings income 5% cumulative withdrawal Taxed when chargeable event occurs eg death or surrender or withdrawal above 5%
36
What is the purpose of top slicing?
Individual taxpayers may suffer extra tax by being charged in a single year on gains that have accrued over a period of time. Top-slicing relief may assist. It allows chargeable gains to be divided by the number of complete years the bond has been in force to recognise the fact that the chargeable gain has accrued over the whole period for which the bond was in force and not merely in the tax year in which tax is to be assessed on the chargeable gain
37
What is top slicing used for? (2)
Investment bonds aka investment with minimal life policy cover Onshore/offshore
38
How does top slicing work (2 steps)
Workout tax due as if all taxed in one year (pushes you into higher tax bracket) Minus Tax due as if one year of chargeable gain (apply psa, srs, tax band) x no. Of years
39
Features of investment bonds (5)
Single premium wol policy 5% withdrawal allowed-not chargeable event Commonly used for loan and discounted gift trusts Gains on joint policies are taxed 50/50 Full surrender may push you into higher earnings affecting DWP
40
What two methods can bring down the impact of a chargeable gain with an investment bond
Top slicing Policy segmentation
41
What is the purpose of policy segmentation? (3)
To bring down chargeable gain amount Full or part surrender Full surrender of one segment will be chargeable gain but less that excess withdrawal Partial surrender of all segments not a chargeable gain
42
Why is the 5% withdrawl a good idea?(4)
Treated as a return of capital Doesnt affect personal allowance Doesnt affect tax credits Doesnt affect child benefit
43
What are the pros of having a discretionary fund manager (6)
Specialist or general Handles the active management of funds if little experience in investments Reviewed regularly to maximise opportunities Reviewed regularly to maximise tax efficiency Wider range of investments available/potentials saving costs Consolidated report of all and tax statement
44
What are the cons of discretionary fund manager? (5)
Costs/charges Need ensure risk profiles match yours Needs good communication (tax allowances etc Loss of investment control No guarantee of return
45
Describe an EIS (7)
30% tax reducer Company up to £2m Traded on AIM gains are cgt free if held for 3 years Reinvestment relief-can defer gains until shares disposed of Business relief/iht free if held for two years
46
Describe an SEIS (5)
50% IT 50% of gain reinvested becomes tax free (2 year hold) Business relief/iht free after 2 years Max £100k Gains in fund tax free
47
What the difference between vct and eis
Eis is direct, vct is indirect
48
What is a vct (5)
A listed company that invests in other privately listed companys pools investments 30% tr up to £200k 5 year hold Cgt free on gains NO Cgt defferal
49
What is an etf? (7)
Tracker funds of index’s all over the world Type of pooled investment Quarrterly divs Traded as single share on stock exchange Broker fees, management charges Counterparty risk No stamp duty on etfs
50
What is a unit trust? (7)
Open ended Setup under a trust deed Mixtures of securities in underlying fund Units created and cancelled Equalisation dates-when income added to unit price/worth half yearly Taxation-20% corp tax, dividends-already paid-franked income Gains-against cgt allowance
51
What policies give rise to chargeable gains? (5)
Non qualifying policies Policies which are single premium (must be regular premium to be qualifying) Policies that are less than 10 years Policies where the sum assured is <75% of premiums paid Offshore policies are all non qualifying
52
What events result in a income tax charge on a non qualifying policy? (5)
Death of the life assured that gives rise to payments of benefits Maturity of the policy Full surrender of the policy Assignemnet Part surrender
53
Considerations for collective commercial property investment? (8)
Not massively correlated to other asset classes-provides diversification Retail, office industrial Geographic diversification should provide safety against risk of economic environment in one area Can be susceptible to economic trends/change in work environment/reduced demand post covid Needs to suit higher risk profiles Could be liquidity issues Charges Commercial property has longer lease than residential-more prolonged returns
54
What is bed and breakfasting? (3)
investing strategy where an investor sells a security at the end of the day on the last day of the financial year and buys it back the next morning. A bed and breakfast strategy allows investors to minimize the amount of capital gains taxes they must pay/use cgt allowance each year. The 30-Day Rule of 1998 banned the practice of "bed and breakfasting," forcing investors to wait 30 days before being allowed to repurchase the security they had just sold. 
55
Process for establishing ESG investments (6)
Explain ESG/explain screening Establish their ESG position/areas of concern Research info on ESG Assess clients current position re esg equities Realign portfolio Document the Esg position and any changes made
56
How do you obtain the additional permitted subscription? (9)
Must be married to person/living together on date of death Obtain value of ISA at point of death Claim APS Aps protects the isa wrapper Can still use own isa allowance Can be applied for up until 3 years after death Can retain existing own isa Can transfer existie holdings in that isa to yourself You can then invest these assets in lime with you atr

R06 CII June (22 decks)

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