Factfile: OEIC Open Ended Investment CompanyOEIC

Lump sum investments: Yes

Regular premiums allowed: Yes

Flexible payments allowed (stop/start/additional/increase/decrease): Yes

Investment Risk Profiles Available:

Changing funds and risk profile allowed: Yes

Moving to another company allowed: Yes

Life Insurance Included: No

Personal Tax Benefits:

  • Capital gains tax free only up to yearly allowance
  • 20% income tax at source (non shares/dividend income) - can be reclaimed by non tax payers
  • 10% dividend tax credit cannot be reclaimed by a non tax payer
  • Basic rate tax payer has no further liability to income taxes
  • High rate tax payer subject to 22.5% on 'shares' unit trust income
  • Can package inside an ISA to make capital gains tax free although tax credit can still not be reclaimed

Can be held inside Trust: Yes

Suitable for:

  • Children
  • Adults
  • Business
  • Trusts
  • Charities
  • Pension Fund Investment
  • Non Tax Payers
  • Basic Rate Tax Payers
  • High Rate Taxpayers

Insolvency Compensation Limits:

Investment Company - Maximum compensation for insolvency £48,000. Do not invest more than £50,000 with any one company.

Brief Description:

Investing in Open Ended Investment Companies - OEICS allows you to invest in a great deal of shares with other people wishing to do the same. Each persons money is pooled together and then invested. Each person is then issued with shares in the fund company.  Each share represents an equal fraction of the underlying assets in the fund.  An OEIC is a self contained company which appoints directors, holds annual general meetings and issues shares. There can be a charge (known as an initial charge) to cover the setting up of your holding. There is also usually a management charge for the ongoing management of your investment. 

An OEIC is classed as 'open ended' because the fund will increase or decrease depending on demand. An investor can sell their shares back to the OEICs. It is usual for shares to be valued in line with the underlying investments held by the fund. This means that the value of your holding could rise or fall on a daily basis. OEICs offer a wide spread of different markets and types of investment.  Whether you require income, growth or both income and growth there will be OEICs to meet your needs. Depending on the level of risk you wish to take with your investment, you will have the opportunity to invest in general funds or funds concentrated in a particular area, such as investment in the UK, Europe or areas such as smaller company funds and technology funds.

 

Income Taxes:

Income Tax and Dividend Income

Share Dividends received into OEICs are taxed at 20%.  Any dividends paid by the OEICs come with a tax credit of 10%.  Capital gains within OEICs are not taxed although if you switch to a different class of share, a capital gain could arise.

For example, if you receive a dividend from your OEICs provider it will be paid net to you.  If the dividend was £1 then only 90p would be paid to you.  This is because 10% tax has been deducted.

  • If you are a non taxpayer - you cannot reclaim the 10% tax paid
  • If you are a basic rate taxpayer - there will be no further tax to pay
  • If you are a higher rate taxpayer - you will need to pay a further 22.5% through your tax assessment

Income Tax and Other Income

Other income paid into OEICs is usually taxed as savings with 20% deducted.

  • If you are a non taxpayer - you can reclaim the 20% tax paid
  • If you are a basic rate taxpayer - there will be no further tax to pay
  • If you are a higher rate taxpayer - you will need to pay a further 20% through your tax assessment

Capital Gains Tax CGT

Depending on the amount of profit you make when you sell OEICs, you may need to pay Capital Gains Tax.

When calculating your profit you are allowed to deduct the original purchase price, any expenses you incurred when buying or selling and you may be entitled to Taper Relief.  

Request expert advice today or visit our Investment Shop and choose your own investment.

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