Please use our new search engine to find out more about the range of products available from Corrigans.
|
 |
|
Financial Services > Investments > Shares
|
If you buy shares you become one of the owners of the business in question, and those shares can either be bought 'brand new' or 'second hand'.
There are different types of shares which have different rights attached to them. Some have voting rights and others do not, some receive income rights whilst others do not and another category of shares may have more or less priority in any claim upon the company assets if the business ceases trading at any time.
..............................................................................................................
The market value of a share varies from day to day on a tide of market sentiment rather than in any direct relationship to the value of the physical assets.
If you receive dividends from those shares, those payments represent your proportion of the profits made by the business that it is willing to return to investors. Some of the profit may well be retained by the business either to meet its growing need for cash as the business expands, or alternatively to invest in new products, premises, people or plant.
Those dividends have suffered Corporation Tax and so come to individuals with a 10% income tax credit and exemption from any more Income Tax at the basic rate. When you become a higher rate Income Tax payer you have an extra 32.5% Income Tax to pay calculated on the net dividend you receive if your highest marginal Income Tax rate is 40%. If you are lucky enough to have to pay 50% Income Tax then the extra levy is 42.5%. You must inform your accountant or Her Majesty's Revenue & Customs of the dividend payments that you receive.
..............................................................................................................
Changes in the value of your shares are not taxable until the point at which you dispose of the shares.
At that point, the difference between the purchase price and the sale price is potentially subject to Capital Gains Tax.
Every UK tax payer is allowed to make gains of £10,100 in the 2010/2011 tax year before any Capital Gains Tax is payable. The tax is calculated by taking the cost price and the available allowances away from the sale proceeds after expenses. Whatever is left is divided between the number of owners of the investment and added to their taxable income. This means that most people would pay 18% tax on that balance.
..............................................................................................................
Buying individual shares is a bit like trying to find a winner in the Grand National each year. If you are lucky enough to choose the right horse, the scope for profit is clear, but if you are less fortunate you can lose everything.
In the case of individual share purchases it is vital that you do your own research into the business in question or place your trust in a stockbroker who is performing the same task on your behalf.
You can lessen the risk that you face by investing in a wide range of businesses across many types of activity i.e. banking, petro-chemical, pharmaceutical, food and drink retail, oil or energy etcetera, and also over a wide geographical area so that you have exposure to a broad range of markets. This is particularly difficult to achieve and exceptionally expensive and so is only open to those with the greatest wealth.
A more practical solution for most people is to get access to shares through collective investment schemes such as unit trusts, investment trusts, open ended investment companies and undertakings for collective investment in transferable securities. The economies of scale provided by those collective investments bring the potential presented by shares into the reach of everyone.
..............................................................................................................
Shares have risen in value more quickly than cash deposits over the longer term for more than 100 years and the hope of any investor in shares is that this trend will continue.
|
|
