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www.InvestmentGuide.co.uk How best to invest in stocks and
shares
Other types of direct investment
in shares
Shares - A Beginners Guide to Making
Money
Investment trusts
Unit trusts
Offshore funds
SHARES
(Also called Alternative Investment Market, Offex, USM, Unlisted Securities Market, Unlisted, Over The Counter ,OTC)
You invest a lump sum in the shares of an unquoted company in the UK. The shares are bought and sold by stockbrokers and other institutions who make a market in the shares of their clients. Companies may be recently formed and do not have to meet the conditions for those traded in the Stock Exchange proper. Only a few shares may be available to the public; the rest are kept by the people who run the company. You don't usually receive an income and hope to make a capital gain by selling for more than you paid but you may end up with a loss by selling for less. It is best to invest in a portfolio consisting of shares from between 7 to 16 different companies to spread the risk. AIM is the Alternative Investment Market where shares count as unquoted for tax and other rules although in reality they are quoted on the London Stock Exchange.
Who can invest Anyone.
How worthwhile You may want to invest if you know the Directors of the company personally or know someone who does. Similar to the Enterprise Investment Scheme but without the tax relief. Shares Ordinary Quoted are much easier to sell and are less risky. Some investment trusts invest part of their portfolios in unquoted shares and you can also consider Venture Capital Trust which has tax relief. Unsuitable for anyone other than higher rate taxpayers who like to gamble.
Minimum £14,000-£20,000 for a portfolio of unquoted and quoted shares: say £2,000 worth of shares in 7-10 companies. Lower amounts not worth-while because of minimum commission and lack of diversified portfolio.
Maximum There are limited numbers of shares available to the public in some unquoted companies.
Suitable Lump sums.
Money back 5-10 working days if your stockbroker can find a buyer. You get the market price when you sell. Some shares turn out to be unsaleable.
Interest Variable. Called dividend. The before tax interest is called the yield which is generally nil.
Interest paid If there is any, usually half-yearly by cheque to you. About 5 weeks before the dividend date, the shares go ex-dividend; this means the seller gets the dividend, not the buyer.
Tax Tax is deducted from the dividend and since 6 April 1999 cannot be reclaimed by non-taxpayers. Higher rate taxpayers have to pay 22½% extra. Gains on shares are liable to capital gains tax but once they are held for more than four years, the maximum tax is 10% as the business taper relief rules apply. These shares are also exempt from inheritance tax if you own some when you die. If you buy new shares direct from an unquoted trading company and it later goes bust or the shares are sold realising a loss, you can normally set the loss against your income either in the tax year in which the loss occurred or the next tax year. Alternatively the loss can be set against your capital gains.
Fees to pay Commission when you buy 1%-1.9%, minimum £17 to £30; stamp duty ½%. Commission only when you sell.
Children Unsuitable.
Risk High. Safer to buy a new issue because of tax relief on losses - see Tax above.
How to invest These types of shares are best avoided by most people.
Where from A stockbroker.
Other types of direct investment
in shares
Shares - A Beginners Guide to Making
Money
How best to invest in stocks and
shares
Investment trusts
Unit trusts
Offshore funds
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Last updated 7 April 2000