The guidance and/or advice contained within this website is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK.

Three of the most popular types of investment are covered here. INVESTMENT BONDS     ...Underlying Investments     ...Capital Growth     ...Encashment     ...Income Withdrawals     ...Taxation INDIVIDUAL SAVINGS ACCOUNTS (ISAs)     ...Underlying Elements     ...Types of ISAs     ...Investment Limits     ...Capital Growth     ...Encashment     ...Taxation     ...16 & 17 Year-Olds OPEN-ENDED INVESTMENT COMPANIES (OEICs)     ...Underlying Investments     ...Capital Growth     ...Encashment     ...Income     ...Taxation   INVESTMENT BONDS An Investment Bond is a lump sum investment, managed by a life assurance company. Money you invest purchases a number of 'units' within a fund, run by professional investment managers. Your units are pooled with those of other investors. Underlying Investments There is (usually) a vast range of underlying investments: stocks & shares, property, deposits and so forth. The type and range of underlying investments depends upon which fund(s) you select. Investment Bonds and Capital Growth The value of most underlying investments goes up and down. And so, therefore, does the value of your units. Over the medium-long term, asset-backed investments such as Investment Bonds usually out-perform deposit-based investments. However, they don't provide the same capital security as deposits. Encashing Investment Bonds Most Investment Bonds don't need to be encashed on a particular date in the future. Investment Bonds don't need to be encashed in full. You can encash just a percentage or £X's worth. For married couples, Investment Bonds are usually written on both lives - so they can continue until second death. Income from Investment Bonds Regular income 'withdrawals' can be taken (e.g. monthly). There may be a minimum and/or maximum level set by the fund manager. Withdrawals can constitute capital and/or profit. The size of any withdrawals taken can be varied, to suit your needs. NB: The higher the withdrawals = the less opportunity for capital growth, of course. Investment Bonds & Taxation The underlying fund pays some tax. So, the benefits payable on death or withdrawal are free from both personal Capital Gains Tax and Basic Rate Income Tax. For 'part-surrenders' (usually in the form of regular withdrawals), up to 5% p.a. of the original capital may be withdrawn free from personal tax liability - until the total withdrawn equals the sum originally invested. The allowances are rolled-up if less than 5% p.a. is taken (e.g. none for 4 years then take 20%). Some Higher Rate Income Tax may be payable on profit withdrawn or on withdrawals taken in excess of 5% p.a. Age Allowances (if available to you at the time) may also be affected. <Top of Page> INDIVIDUAL SAVINGS ACCOUNTS Individual Savings Accounts (ISAs) enable UK residents to save / invest in one of the most tax-efficient and flexible ways possible. Underlying Elements of ISAs ISAs may contain one or two elements: Stocks & Shares / Investment ISA: ...Includes what used to be 'Personal Equity Plans' (PEPs). Investment into collective funds such as Unit Trusts / Investment Trusts / Open-Ended Investment Companies (OEICs), or portfolios of shares, or shares in a single company. Cash Deposits / Cash ISA: ...Includes what used to be 'TESSA-Only ISAs' (TOISAs). Savings in a bank or building society account / cash Unit Trust. (A 'TOISA' was for the transferred capital from a matured TESSA). Types of ISAs There are two main types of ISA: Single-Manager: Usually chosen for making maximum investment into the Stocks & Shares element, but might also offer the Cash element. Separate Managers: Separate plans for each of the two types of underlying elements. ISA Investment Limits Individuals may currently invest up to an overall maximum of £10,200 per tax-year. (It had been £7,200 but the higher limit applies since 6 October 2009 for people age 50+ or since 6 April 2010 for others). Within the overall annual limit, the maximum into the Cash element is currently £5,100 per tax-year. (It had been £3,600 but the higher limit applies since 6 October 2009 for people age 50+ or since 6 April 2010 for others). ISAs and Capital Growth The value of a Stocks & Shares ISA is linked to the value of its underlying assets. It goes up and down. Especially over the short term, fluctuations in value are to be expected. Share-based investments have in the past generally out-performed deposit accounts over the medium-long term. However, they do not provide the same capital security as deposit ('cash-based') accounts. Cash-based accounts are for funds which are not to be exposed to fluctuations in value, and are suitable e.g. for short-term purposes and as "emergency funds". Encashment of an ISA ISAs do not need to be encashed on a particular date in the future. Nor need they be held for a minimum period (although share-based holdings should be considered as medium-long term investments). ISAs do not (usually) have to be encashed in full. NB: If you invest to the maximum limit within a tax-year and then withdraw some capital, you will not be allowed to make any further ISA investment during that particular tax-year. ISAs & Taxation Capital gains within ISAs are exempt from Capital Gains Tax (CGT). A capital loss within an ISA cannot be used to offset a gain realised elsewhere. Interest from cash deposits and fixed-interest securities (e.g. corporate bonds) have 20% tax-credits and are usually tax-free within ISAs. ISAs lose their tax-efficiency following the death of the ISA-holder. Cash ISAs for 16 and 17 Year-Olds People aged 16 and 17 may hold money in a Cash ISA. This could be helpful to 16 and 17 year-olds who pay Income Tax. NB: parents who give money to their 16 and 17 year-old children to hold in a Cash ISA could end up paying tax: If the interest generated exceeds £100 p.a., then all of the income will be treated as the parents' and should be declared for tax purposes. <Top of Page> Open-Ended Investment Companies An Open-Ended Investment Company (OEIC) is similar to a Unit Trust, in that it's a professionally-managed collective investment. In fact, many Unit Trusts have been converted into OEICs. 'Open-ended' means that they do not have a fixed number of shares. The money which you invest purchases a number of OEIC shares in a fund. Your money is pooled with that of other investors. Most Investment ISAs are invested into Unit Trusts or OEICs. Underlying Investments There is a vast range of underlying investments within each fund: usually a selection of stocks & shares. The type and range of underlying investments depends upon which fund(s) you select. OEICS & Capital Growth The value of the underlying investments goes up and down. And so, therefore, does the value of your OEIC shares. Over the medium-long term, asset-backed investments such as OEICs usually out-perform deposit-based investments. However, they do not provide the same capital security as deposits. Encashing OEICs An OEIC investment doesn't need to be encashed on a particular date in the future. OEICs don't need to be encashed in full. You can encash just a number of OEIC shares or £X's worth. Income From OEICs The size of any income produced depends on the particular fund(s) into which you invest. Income payments are usually half-yearly. OEICS & Taxation The underlying fund itself is free from Capital Gains Tax (CGT) - so the liability for CGT is with the investor. The dividends are liable to Income Tax on the investor. <Top of Page> The editorial here does not constitute personal advice. It reflects Bernas Coni Warren's understanding of current law and tax practice, and is without prejudice. No liability shall attach. Errors & Omissions Excepted.   © Copyright Bernas Coni Warren www.BernasConiWarren.com 01275 83 73 03 7 School Close, Whitchurch, Bristol, BS14 0DU Bernas Coni Warren is an appointed representative of Sesame Ltd, which is authorised and regulated by the Financial Services Authority. Sesame is entered on the FSA Register under reference 150427.