Lump Sum Investments
Investment Bonds
This type of product is a single premium life assurance policy with the investment in one or more unit linked fund. The value of the bond is linked to the buying and selling of the underlying investment, and a switching facility is usually available.
Some bonds have been marketed with life cover, but they would not qualify for the associated tax treatment of the bonds with life assurance.
The policy may be written in trust or assigned as with other life policies.
The main advantage of bonds is that withdrawals of up to 5% per annum of the amount invested can be taken as 'income' without any immediate tax liability for up to 20 years, within unused amounts carried forward indefinitely.
The tax treatment of these bonds can be complex and independent financial advice is recommended.
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Unit Trusts
In buying a unit trust you are purchasing a beneficial interest in a fund made up of shares, government securities or other investments, which are managed by professional fund managers. They are ideal for an investor who accepts a degree of risk and seeks a potentially relatively high return but wants the investment professionally managed at a reasonable cost.
The value of the units held fluctuate according to stock market conditions and the value of the underlying assets, which the fund holds.
The main advantage of unit trusts is that professionals manage the funds and the risk is further reduced by a spread of investments, reduced dealing costs and reduced paperwork.
They can however be unsuitable as short term investments because of the cost structure. Usually prices move slowly and unit trusts are therefore not appropriate for speculation.
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Investment Trusts
An Investment Trust is a public company whose assets consist of shares in other companies. As with Unit Trusts risk is reduced compared with direct equity investment because the investments are spread and handled by professional managers. However, unlike unit trusts, they are not subject to large inflows and outflows or cash, as investors wishing to encash their investments do so by selling the shares through the Stock Exchange rather than requiring the manager to repurchase them. This allows the managers greater freedom of investment. Investment Trusts are also allowed to borrow, which can increase the prospect of favourable returns, but increases the investment risk if they do not.
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Individual Savings Accounts (ISA's)
From 6th April 2008 you will be able to subscribe to two separate ISAs each tax year – a Cash ISA and/or a Stocks and Shares ISA. The terms maxi and mini will no longer exist.
This change will also affect previous tax year ISAs. If you hold an ISA already, it will have a new classification as follows:
| Existing ISA Type |
New classification from 6th April 2008 |
Mini Cash ISA |
Cash ISA |
Maxi Cash Component |
Cash ISA |
Mini Stocks and Shares ISA |
Stocks and Shares ISA |
Maxi Stocks and Shares ISA |
Stocks and Shares ISA |
Personal Equity Plan (PEP) |
Stocks and Shares ISA |
The overall annual ISA subscription limit will increase from £7,000 to £7,200. All of your annual subscription can be invested into a Stocks and Shares (equity) ISA. Alternatively, up to £3,600 of the overall subscription limit can be invested in a Cash ISA with one ISA manager. The remainder of the £7,200 subscription can be invested in a Stocks and Shares ISA with either the same or different ISA Manager.
A feature of the new subscription limits is that they are divisible by twelve to assist monthly investors.
Note: It will not be possible for an individual to subscribe to two ISAs of the same type in the same tax year, for example two cash ISAs.
Click here to request more information about Individual Savings Accounts (ISA's).
TESSA's / TESSA Only ISA's
TESSA's were also replaced in 1999 with ISA's but those already established were allowed to continue to complete their normal five year term. At maturity, you can transfer the capital, but not accrued interest to a TESSA only ISA in much the same way as the reinvestment of TESSAs was previously available. The transfer must occur within a specific time limit.
Click here to request more information about TESSA's / TESSA Only ISA's.
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