Info about guarenteed capital bonds?

kgnokl973

Typically, GEBs or GCBs as they're known work like this: your initial investment is absolutely safe i.e. if you invest £1000, the worst that could possibly happen is that you get £1000 back at the end.
As regards your return, it's usually linked to a stockmarket index. If it's a British bank it will probably be the FTSE 100. Usually you'll get a proportion of whatever the uplift is (known as the participation rate), usually between 60% and 80%. For example:
You invest £1000 in a three year GCB with a participation rate of 70%. Let's say the FTSE starts at 4100 and finishes at 5400 ( a rise of about 24%) you'd be eligible for 70% of that growth so your return would be 16.8%. There'd be tax to pay on that (unless it's an ISA version which are available) of 20% at source, there fore a net return of 13.44% or £134.40. That all comes as a lump sum payment at the end.
Bear in mind that there are variations on a theme with these for example some providers offer a fixed return at the end so long as the stockmarket rises rather than offering a proportion of any increase. Also, as I mentioned, these do come as ISAs as well which is worth thinking about. They class as Cash ISA rather than stocks and shares ISA since the capital invested is guaranteed and the isn't invested in the stockmarket (rather the return is simply linked to stockmarket performance). You can use your £3,600 allowance for 2009-10 and/or cash ISA funds that you have built up already.
To give some clarification on how they guarantee your investment, they buy an insurance policy that says that whatever happens your money is safe. They then use your money to do whatever they like- lending to other customers, trading property, art, commodities etc. and then work out your return at the end. Despite the return being linked to the FTSE, it's not necessarily invested in the FTSE. Therefore, obviously, they make more money if the stockmarket bombs and they only have to give back your original investment, but it's not a con at all.
Hope this is of some help, sorry it's a bit longwinded!
P.S. I was talking about the GCBs offered by high st banks rather than asset managers. These returns certainly count as income, not capital gains

dunstonh

P.S. I was talking about the GCBs offered by high st banks rather than asset managers. These returns certainly count as income, not capital gains

Apart from those that have been issued in other tax wrappers, including life assurance (Lloyds for example).

your initial investment is absolutely safe

Apart from those that were underwritten by Lehmanns and potentially any of them underwritten by companies not regulated by the FSA.

kgnokl973

dunstonh wrote: »

Apart from those that have been issued in other tax wrappers, including life assurance (Lloyds for example).



Apart from those that were underwritten by Lehmanns and potentially any of them underwritten by companies not regulated by the FSA.

as I mentioned, I'm talking only about GCBs offered by high st banks

dunstonh

as I mentioned, I'm talking only about GCBs offered by high st banks

So am I. lloyds have issued GEBs using the life funds tax wrapper. I seem to recall another a few that was based on a unit price as well and were chargeable to capital gains tax and not income tax.

guli

kgnokl973 wrote: »

Typically, GEBs or GCBs as they're known work like this: your initial investment is absolutely safe i.e. if you invest £1000, the worst that could possibly happen is that you get £1000 back at the end.
As regards your return, it's usually linked to a stockmarket index. If it's a British bank it will probably be the FTSE 100. Usually you'll get a proportion of whatever the uplift is (known as the participation rate), usually between 60% and 80%. For example:
You invest £1000 in a three year GCB with a participation rate of 70%. Let's say the FTSE starts at 4100 and finishes at 5400 ( a rise of about 24%) you'd be eligible for 70% of that growth so your return would be 16.8%. There'd be tax to pay on that (unless it's an ISA version which are available) of 20% at source, there fore a net return of 13.44% or £134.40. That all comes as a lump sum payment at the end.
Bear in mind that there are variations on a theme with these for example some providers offer a fixed return at the end so long as the stockmarket rises rather than offering a proportion of any increase. Also, as I mentioned, these do come as ISAs as well which is worth thinking about. They class as Cash ISA rather than stocks and shares ISA since the capital invested is guaranteed and the isn't invested in the stockmarket (rather the return is simply linked to stockmarket performance). You can use your £3,600 allowance for 2009-10 and/or cash ISA funds that you have built up already.
To give some clarification on how they guarantee your investment, they buy an insurance policy that says that whatever happens your money is safe. They then use your money to do whatever they like- lending to other customers, trading property, art, commodities etc. and then work out your return at the end. Despite the return being linked to the FTSE, it's not necessarily invested in the FTSE. Therefore, obviously, they make more money if the stockmarket bombs and they only have to give back your original investment, but it's not a con at all.
Hope this is of some help, sorry it's a bit longwinded!
P.S. I was talking about the GCBs offered by high st banks rather than asset managers. These returns certainly count as income, not capital gains

Hi kgnokl973/dunstonh,

Does that mean that GEB/GCB that's issued by asset managers, like Premier Asset Management's latest GEB issue has their returns count as capital gain?

Just trying to figure out whether to put that said GEB in a tax wrapper or not, depening if its returns counting as capital gain/income.

Thanks

dunstonh

guli, the issue 42 is treated as income. Its paid gross and and needs to be declared via self assessment.

musehead

Given that we have just seen a major fall in the FTSE 100, the Premier issue 42 seems to be a very good deal to me. It seems to me the chance of the FTSE 100 being approx <2000 in 5 years time is very low. The last time the index dropped below 2000 was September 1990. A gross income of 8% is attractive given the low risk to capital.

hanmol

kgnokl973 wrote: »

Typically, GEBs or GCBs as they're known work like this: your initial investment is absolutely safe i.e. if you invest £1000, the worst that could possibly happen is that you get £1000 back at the end.
As regards your return, it's usually linked to a stockmarket index. If it's a British bank it will probably be the FTSE 100. Usually you'll get a proportion of whatever the uplift is (known as the participation rate), usually between 60% and 80%. For example:
You invest £1000 in a three year GCB with a participation rate of 70%. Let's say the FTSE starts at 4100 and finishes at 5400 ( a rise of about 24%) you'd be eligible for 70% of that growth so your return would be 16.8%. There'd be tax to pay on that (unless it's an ISA version which are available) of 20% at source, there fore a net return of 13.44% or £134.40. That all comes as a lump sum payment at the end.
Bear in mind that there are variations on a theme with these for example some providers offer a fixed return at the end so long as the stockmarket rises rather than offering a proportion of any increase. Also, as I mentioned, these do come as ISAs as well which is worth thinking about. They class as Cash ISA rather than stocks and shares ISA since the capital invested is guaranteed and the isn't invested in the stockmarket (rather the return is simply linked to stockmarket performance). You can use your £3,600 allowance for 2009-10 and/or cash ISA funds that you have built up already.
To give some clarification on how they guarantee your investment, they buy an insurance policy that says that whatever happens your money is safe. They then use your money to do whatever they like- lending to other customers, trading property, art, commodities etc. and then work out your return at the end. Despite the return being linked to the FTSE, it's not necessarily invested in the FTSE. Therefore, obviously, they make more money if the stockmarket bombs and they only have to give back your original investment, but it's not a con at all.
Hope this is of some help, sorry it's a bit longwinded!
P.S. I was talking about the GCBs offered by high st banks rather than asset managers. These returns certainly count as income, not capital gains

Hi Thank you for this message. I would like to know how I may make a formal complaint relating to the way in which I was sold and advised relating a guaranteed capital bond linked to the FTSE 100. My bond only uses the last 6months value of the FTSE following a 5year investment. This was NOT clearly advised to me and upon needing to make an early part withdrawl I was alerted to this, much to my horror. The monies invested came to me after losing my Dad and soul mate. I can't believe I have allowed myself to "trust" someone elses judgement. Please help me prevent others from being mis-sold accounts.

dunstonh

Please help me prevent others from being mis-sold accounts

Its not an account. Its an investment.

To be honest, I dont think you will have much of a chance of success as your problem relates to early surrender and the risk warnings in the documentation will have a bit on early surrenders. There will almost certainly be a bit in the suitability report stating that you can get back less than you pay in if you dont wait until maturity. There will be in the key features document and most illustrations.

On the other hand, if you invested into a 5 year product if you knew you needed the money in that 5 year period then the product recommendation wouldnt have been suitable. If your intention was to leave it for 5 years but you now wish to break the contract then you are snatching at straws. Especially as you knew it was a 5 year product. To get a complaint upheld you would really have to rely on a documentation error by the adviser in not having, what is an almost automatic risk warning, in their suitability report.

Take a look at the suitability report you were issued with at the time and if the risk warning is in there then the adviser has covered themselves correctly. If there is no risk warning, then you may get a success. However, it would depend if the product key features are detailed or not.