Guaranteed Investment Bonds

cepheus

meester, thanks for this analysis, have you allowed for expenses in this?

There is a great deal of long term uncertainty in the markets with the sub prime crisis and other debt instruments on the horizon which many banks may be liable for. For them this is unknown territory and if it came to the worst they could drag down everything else. I suppose there is a small but still not insignificant chance that the product may not meet the -50% criteria and it will default to a tracker with the associated loss.

digger3_2

Have I understood this right? If I put money into this as an ISA , I cannot have a cash ISA as well , so may as well put the full £7200 into it.Has anyone invested into it ? Thanks Digger

Mikeyorks

digger3 wrote: »

If I put money into this as an ISA , I cannot have a cash ISA as well

If you opt for the 08-09 ISA then you can have both .. if you wish. The minimum deposit for the Premier product is £5k ... so you could put the balance of £2.2k into a cash product with another provider. Or permutations around the £7.2k ceiling - provided the Premier element was at least £5k.

Quote from HMRC re 08-09 :

From April 2008 you will be able to invest in one cash and one stocks and shares ISA each tax year.
The annual ISA investment allowance has now risen to £7,200 per tax year. Up to £3,600 of that allowance can be saved in cash with one provider. The remainder of the £7,200 can be invested in a stocks and shares ISA with either the same or another provider.
For example, you can chose to save £1,000 in a cash ISA with one provider and £6,200 in a stocks and shares ISA with a different provider.

meester

digger3 wrote: »

Have I understood this right? If I put money into this as an ISA , I cannot have a cash ISA as well , so may as well put the full £7200 into it.Has anyone invested into it ? Thanks Digger

There is no particular reason to shelter this product inside an ISA unless you have other CGT-liable investments to worry about.

If you invested £10,000, then if the product matures in 1 year, you would make a capital gain of £1,600. This would not be taxable unless you have other capital gains (the capital gains allowance is about £10k per person) in the tax year. In the really rather unlikely case that the product matures in six years (unlikely since it requires the FTSE100 to spend the next 5 years (or the anniversary dates at least) below the initial level, and then to go above it only on the sixth anniversary), you would make a 96% gain. This would be a £9,600 profit, which would for the current year be £400 above the CGT allowance, but by six years from now will certainly be not. It's slightly inconvenient in that respect as you can't choose when to crystalise your gain, but on the plus side it matures in April, so you will always know early in the tax year the extent of any capital gain resulting from that product.

I personally do not plan to put it in an ISA, I think it is a waste.

In fact, in many ways it is quite a friendly starting product for investors to go outside the ISA safety net and start investing more than the £7k/year ISA allowance (and taking advantage of CGT tax-free band, which is fairly generous compared to income tax personal allowance), because the size of the capital gains are known in advance. I am filling out the forms in joint names for extra flexibility, which means that with CGT increasing £400/year, then in six years the allowance would almost certainly not be less than £12k. So for a joint application, 24,000 / 0.96 = £25k initial capital (or half that, £12.5k for a single investor) could certainly be made tax-free. You could probably actually invest more like double that and in all likelihood not pay CGT (given likelihood the product will mature fairly quickly), but it's not assured.

meester

meester wrote: »

There is no particular reason to shelter this product inside an ISA unless you have other CGT-liable investments to worry about.

If you invested £10,000, then if the product matures in 1 year, you would make a capital gain of £1,600. This would not be taxable unless you have other capital gains (the capital gains allowance is about £10k per person) in the tax year. In the really rather unlikely case that the product matures in six years (unlikely since it requires the FTSE100 to spend the next 5 years (or the anniversary dates at least) below the initial level, and then to go above it only on the sixth anniversary), you would make a 96% gain. This would be a £9,600 profit, which would for the current year be £400 above the CGT allowance, but by six years from now will certainly be not. It's slightly inconvenient in that respect as you can't choose when to crystalise your gain, but on the plus side it matures in April, so you will always know early in the tax year the extent of any capital gain resulting from that product.

I personally do not plan to put it in an ISA, I think it is a waste.

In fact, in many ways it is quite a friendly starting product for investors to go outside the ISA safety net and start investing more than the £7k/year ISA allowance (and taking advantage of CGT tax-free band, which is fairly generous compared to income tax personal allowance), because the size of the capital gains are known in advance. I am filling out the forms in joint names for extra flexibility, which means that with CGT increasing £400/year, then in six years the allowance would almost certainly not be less than £12k. So for a joint application, 24,000 / 0.96 = £25k initial capital (or half that, £12.5k for a single investor) could certainly be made tax-free. You could probably actually invest more like double that and in all likelihood not pay CGT (given likelihood the product will mature fairly quickly), but it's not assured.

There is actually one reason (and quite an important one) to put in an ISA, which is to use and carry over your ISA allowance for subsequent years. It's not however a particularly flexible product, and I would prefer to have my ISA money in a fund supermarket or discounted share dealing service. If you don't have enough money for both, it's better than nothing as a way to park your ISA.

meester

meester wrote: »

There is actually one reason (and quite an important one) to put in an ISA, which is to use and carry over your ISA allowance for subsequent years. It's not however a particularly flexible product,

Specifically:

Options at maturity

At the maturity of your investment (after either 1, 2, 3, 4, 5 or six years), you will have a number of options, which may include:

1. Reinvesting into another product offered by Premier Fund Managers Limited at the time
2. Transferring the proceeds to another ISA manager (a transfer-out fee will apply)
3. Taking the proceeds

Obviously this transfer-out fee is undesirable. From their other products it appears it might only be £50, but it would be nice if they specified.

Ideally you would invest £7k into ISA, plus whatever you put in this on top.

darren72

So it would seem beneficial NOT to invest into this through an ISA ?

cepheus

darren72 wrote: »

So it would seem beneficial NOT to invest into this through an ISA ?

This would depend upon a number of factors such as if you have the spare money to use up your ISA allowance elsewhere. I think using the ISA allocation is a good idea since the compound interest works on a wrapper of tax free money. In theory (over the long term) the sky's the limit, you could make millions and not pay a penny in tax.

darren72

cepheus wrote: »

This would depend upon a number of factors such as if you have the spare money to use up your ISA allowance elsewhere. I think using the ISA allocation is a good idea since the compound interest works on a wrapper of tax free money. In theory (over the long term) the sky's the limit, you could make millions and not pay a penny in tax.

But investing in this as an ISA would use up some of the Cash element, as the minimum investment is £5,000.

Also, you don't need to pay tax anyway if the capital gains are less than around £9,000 ??

Thanks

dunstonh

If you are going to use your ISA allowance elsewhere then do that. If you arent going to use your ISA allowance at all then you should use this in the ISA. It may not be beneficial now but may be in future years. Remember the ISA allowance is a use it or lose it allowance.