CISI Investment Risk and Tax Planning - Chapter 1
Why should you hold cash? - CORRECT ANSWER-- Liquity (instant access) for
planned spending or emergency funds
- Safe since capital is unlikely to be lost since there is no captial gains and
interest is paid so you get real return
What is the interest rate ? - CORRECT ANSWER-Interest is a percentage of
funds deposited - higher the deposit , higher the rate
Types of interest rates? - CORRECT ANSWER-Fixed or Variable interest rates
Difference between Gross and Net Interest - CORRECT ANSWER-Gross is
interest that is paid before the deduction of income tax or other charges are
deducted. Net interest rate is effective interest rate after tax is deducted from the
gross rate.
What is the Annual Equivalent rate? - CORRECT ANSWER-The AER makes it
easier to compare savings accounts in the UK by illustrating how much interest
you could earn from a savings account if it were open for one year. (It is usually
quoted gross)
What is compound interest? - CORRECT ANSWER-The interest you earn from a
savings account could be paid to you as you earn it or at a later date, or it could
be paid back into your savings account, from which you could earn interest from
your original deposit, as well as on any interest you've earned. This process is
known as compounding.
Features of National Savings and Investment Products - CORRECT ANSWER--
Only risk free deposits since it's government backed
- It's an agency of the chancellor, accountable to the Treasury.
What is peer to peer lending? - CORRECT ANSWER-- Lending to individuals
without using a financial intermediary (ie. bank)
- It brings borrowers and lenders together online in return for a fee.
, What are the disadvantages of peer to peer lending? - CORRECT ANSWER--
Default on loans by the borrowers (ie. unable to pay it back)
- EXTRA: Loans are sometimes pooled to diversify risk.
-There is high APR on peer to peer lending compared to getting loans from a
bank
- For lenders, the money you lend via P2P is not covered by FSCS. So you can't
incur for any losses.
Is peer to peer lending taxable? - CORRECT ANSWER-Money earned through
peer-to-peer lending is usually classed as income, so is taxable. So it must be
declared in full to HMRC.
Is it possible to hold peer to peer lending in your ISA? - CORRECT
ANSWER-Yes, An Innovative Finance ISA (IFISA) allows P2P loans to be held in
an individual savings account (ISA). This means you can receive interest from
P2P loans tax free and avoid being taxed on any capital gains
Regulation for peer to peer lending - CORRECT ANSWER-Before you lend
through a P2P lender you should check that:
it's regulated by the Financial Conduct Authority.
What is a gilt? - CORRECT ANSWER-A Gilt is a bond issued by the UK
Government
What are the features of Gilts (UK Government Bonds)? - CORRECT ANSWER--
Name: The name given at issue
- Redemption: The year when the gilt is repaid
-Coupon: Expressed as an annual %of the nominal value
-Nominal Value: The capital payment. The holder receives at redemption.
What does the UK Government raise funds for? - CORRECT ANSWER-The UK
Government raises funds for the PSNCR (Public Sector Net Cash Requirement).
This is made up of three component net cash requirements:
- Central Government (CGNCR)
- Local Government (LGNCR)
-Public Corporations (PCNCR)
Why should you hold cash? - CORRECT ANSWER-- Liquity (instant access) for
planned spending or emergency funds
- Safe since capital is unlikely to be lost since there is no captial gains and
interest is paid so you get real return
What is the interest rate ? - CORRECT ANSWER-Interest is a percentage of
funds deposited - higher the deposit , higher the rate
Types of interest rates? - CORRECT ANSWER-Fixed or Variable interest rates
Difference between Gross and Net Interest - CORRECT ANSWER-Gross is
interest that is paid before the deduction of income tax or other charges are
deducted. Net interest rate is effective interest rate after tax is deducted from the
gross rate.
What is the Annual Equivalent rate? - CORRECT ANSWER-The AER makes it
easier to compare savings accounts in the UK by illustrating how much interest
you could earn from a savings account if it were open for one year. (It is usually
quoted gross)
What is compound interest? - CORRECT ANSWER-The interest you earn from a
savings account could be paid to you as you earn it or at a later date, or it could
be paid back into your savings account, from which you could earn interest from
your original deposit, as well as on any interest you've earned. This process is
known as compounding.
Features of National Savings and Investment Products - CORRECT ANSWER--
Only risk free deposits since it's government backed
- It's an agency of the chancellor, accountable to the Treasury.
What is peer to peer lending? - CORRECT ANSWER-- Lending to individuals
without using a financial intermediary (ie. bank)
- It brings borrowers and lenders together online in return for a fee.
, What are the disadvantages of peer to peer lending? - CORRECT ANSWER--
Default on loans by the borrowers (ie. unable to pay it back)
- EXTRA: Loans are sometimes pooled to diversify risk.
-There is high APR on peer to peer lending compared to getting loans from a
bank
- For lenders, the money you lend via P2P is not covered by FSCS. So you can't
incur for any losses.
Is peer to peer lending taxable? - CORRECT ANSWER-Money earned through
peer-to-peer lending is usually classed as income, so is taxable. So it must be
declared in full to HMRC.
Is it possible to hold peer to peer lending in your ISA? - CORRECT
ANSWER-Yes, An Innovative Finance ISA (IFISA) allows P2P loans to be held in
an individual savings account (ISA). This means you can receive interest from
P2P loans tax free and avoid being taxed on any capital gains
Regulation for peer to peer lending - CORRECT ANSWER-Before you lend
through a P2P lender you should check that:
it's regulated by the Financial Conduct Authority.
What is a gilt? - CORRECT ANSWER-A Gilt is a bond issued by the UK
Government
What are the features of Gilts (UK Government Bonds)? - CORRECT ANSWER--
Name: The name given at issue
- Redemption: The year when the gilt is repaid
-Coupon: Expressed as an annual %of the nominal value
-Nominal Value: The capital payment. The holder receives at redemption.
What does the UK Government raise funds for? - CORRECT ANSWER-The UK
Government raises funds for the PSNCR (Public Sector Net Cash Requirement).
This is made up of three component net cash requirements:
- Central Government (CGNCR)
- Local Government (LGNCR)
-Public Corporations (PCNCR)
