From the category archives:

Financial glossary

UK capital gains tax

by The Investor on January 1, 2010

UK capital gains tax explained

Until they start taxing sex, in the UK capital gains tax (CGT) is the most annoying tax to find yourself paying.

CGT is a tax on any profits you make when you sell or transfer assets like shares in your portfolio, rental properties, or even your own company.

In the UK capital gains tax is much simpler than it used to be. UK capital gains tax is now a flat 18% tax rate, and fiddly nonsense like taper relief has been abolished. It no longer matters whether you’ve owned your shares for a day or a decade when calculating your taxable gains.

Even with the new flat rate, like a fly in your soup CGT can really spoil the fun of making money.

Unlike inheritance tax, which is a tax on your good fortune, or income tax, which is a cost of having a job, UK capital gains tax is a tax on success!

Of course, sometimes you won’t make a profit when you sell. That’s called a capital gains loss, and unfortunately you don’t get money back from the government for losing money (not unless you make cars or you’re a bank…)

However, you can offset capital gains with capital losses to reduce the total gain you will pay tax on.

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Tax avoidance versus tax evasion

by The Investor on October 14, 2009

Al Capone was eventually done for tax evasion. If only he'd put his vice gains into a pension...

A lot of people confuse tax avoidance and tax evasion. It can be a dangerous mistake to make!

As the former British Chancellor of the Exchequer Denis Healey said:

“The difference between tax avoidance and tax evasion is the thickness of a prison wall”.

What can’t be stressed enough is that the two terms – and the actions each entails – are definitely not the same thing. [click to continue…]

The Alternative Investment Market (AIM)

September 2, 2009
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AIM can be a rich hunting ground for private UK investors looking for bargains, since shares listed on AIM are less well researched than on the main market.

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What is mark to market?

August 25, 2009
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While it’s primarily an accounting practice, mark to market is relevant for private investors in several ways.

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Investment trusts explained

August 7, 2009
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Investment trusts are companies that invest money in other companies, both listed and private, and/or other assets like bonds and property.

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Growth investing

June 22, 2009
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Growth investing is about putting your money into companies you think will make much bigger profits in the future.

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Horizontal diversification

March 10, 2009

Horizontal diversification is when you hold different instances of the same asset class. In this form of portfolio diversification, you’re trying to reduce localised or industry sector specific risks.
A broad index-based ETF is a good example of horizontal diversification.

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Vertical diversification

March 4, 2009

Vertical diversification is when your investment portfolio is spread across different types of assets.
Cash, government bonds, corporate bonds, property and shares can each be expected to behave slightly differently and so produce different returns, as circumstances change.
For instance, government bonds may soar when stock markets crash, because frightened investors sell their shares to seek the [...]

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Portfolio diversification

February 26, 2009

When deciding whether to buy a particular asset, we should also pay attention to the assets we already own.
A collection of assets is called a portfolio. By buying and holding assets with different characteristics, we can try to create a portfolio that offers the greatest return for the risk we’re prepared to take.
Holding such a [...]

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Currency risk

January 30, 2009

Currency risk arises from exchange rate moves between pairs of currencies. If you have investments or assets in a foreign country with a different currency, you face currency risk, unless the foreign currency is pegged to your domestic currency or your exposure is hedged.

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Time value of money: Why locking money away earns a better return

January 29, 2009

Time value reflects how you’d rather get a fixed sum of money now than exactly the same amount of money in the future.

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Liquidity explained

January 19, 2009

Liquidity indicates how quickly an asset can be converted into cash. Liquidity is a desirable trait to investors, and so generally the more liquid an asset the lower the return it offers, due to investors bidding up its price.

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Risk/return: Nothing ventured, nothing gained

January 9, 2009

Some assets are riskier than others, both in terms of the security of the income they generate and the potential for capital loss. Generally, the higher the risks of holding a particular asset, the higher the potential return for the investor.

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Assets: The building blocks of a portfolio

January 9, 2009

An asset is an item of economic value that can be converted into cash.
Assets likely to be held by private investors include: cash in bank deposits, securities (such as shares issued by private companies, and government or corporate bonds), property, insurance policies, foreign currencies, cars, art and antiques.
Company assets include plants and machinery, and intellectual [...]

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How is annual percentage rate calculated?

January 1, 2009
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The Annual Percentage Rate (APR) enables you to compare the costs of different loans.

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What is GDP?

January 1, 2009
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GDP is a measure of the overall economic output within a country’s borders over a particular time.

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Bed and breakfasting and CGT

December 30, 2008

Rather like B&Bs themselves, bed and breakfasting is an old-fashioned way to defuse CGT that is no longer possible without taking some extra steps.

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