More On Shares And Investment Trusts

Tax Dividends count as taxable income and are paid with the equivalent of basic rate tax already deducted. You get tax credit as evidence of the tax already paid and non-taxpayers can use this to reclaim the tax. Basic rate taxpayers have no more tax to pay. Higher rate taxpayers pay extra tax.

Good for People who can afford to take a risk in the hope of a higher return - though consider also investment trusts or investments linked to shares as an alternative to direct investment.

Bad for Anyone who may need their money back at short notice perhaps when share prices are low. Anyone who can't afford the risk that the value of their capital might fall.

There will usually be a minimum commission - for example, £45 - regardless of the amount you are buying or selling; this makes small deals prohibitively expensive. Even if you invest a reasonable sum, you may need to see a rise in the price of your shares of, say, five per cent or more before you start to make any gain.

TIP - You can save on dealing costs by buying new issues of shares, I such as the newly privatised issues. You can buy new shares directly without using a broker - you apply for a 'prospectus' which contains an application form or you can use an application form printed in a newspaper. But, though you incur no dealing costs when you buy a new issue, remember that you'll incur costs when you come to sell and that these could wipe out most or all of any gain.

WARNING Be wary of claims made for 'penny shares'.

Owning 10,000 shares which cost 1p each has no inherent advantage over owning 100 shares costing £4 each. Though both may cost the same, the return you get will depend on the quality of the company, and on average you'll do better with 100 shares in a solid household name than 1,000 shares in a high risk venture.

TIP - Consider a Personal Equity Plan (PEP) as a tax-efficient way P of investing in shares. With these, income and gains from your investment are tax-free. Within limits, you can use PE Ps to invest in investment trust shares or in unit trusts (see below) as long as the investment or unit trusts invest mainly in UK shares. You can include newly-issued shares that you buy after 6 April 1989 in your PEP. You can get details of PEPs from banks, unit trusts and building societies that run schemes, or from investment advisers.

Learn more about Choosing A Current Account - Here

Shares And Investment Trusts

Where from? Through a stockbroker or other share dealing service, through an investment adviser, or through new issues advertised in newspapers.

How they work You buy a stake in a company and become a part-owner of it along with all the other shareholders. The types of shares available range from shares in old-established companies to shares in very young companies, in different industries, even in different countries. You usually buy and sell in the hope of making a capital gain, though if share prices move against you, you could just as easily make a loss. Many shares also pay out regular... see: Shares And Investment Trusts

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