Takeover
This is when company A decides to buy up company B. Corporate financiers, lawyers and mergers and acquisitions teams work on these kind of deals (see Corporate Finance, Due Diligence, Investment Bank, Mergers & Acquisitions).
Takeover Panel
A select committee of high-level bankers and industrialists whose executive may be consulted by companies that are thinking of taking over another company. The panel makes sure that anyone involved in a takeover, merger or acquisition behaves in an above-board and correct manner. It also ensures that shareholders are kept in the know about all bids and offers (see City Code).
Tangible Assets
Accounting-speak. Things belonging to a business that you can actually touch and feel and that are worth money. They are used to help the business to make profits and are not usually for sale, though there are exceptions to this. Tangible assets belonging to private individuals include property, an antique picture or table, a classic car, etc (see Intangible Assets).
Tap Stocks
Taps are bonds that the government has in reserve, ready to issue on demand. They are always ‘on tap’, hovering in the background, acting as a regulator for the supply and demand of gilts, in case there is a mad surge of investor demand for them. Taps are usually actively traded, in contrast to a large part of the gilt market, which is effectively dead, since many gilts are tucked away for the long term by building societies and insurance companies (see Bonds, Gilts).
Tax
Could someone explain why this innocent three-letter word has the capacity to strike terror into the hearts of the most decent, law-abiding citizens? If the mere thought of tax, or filling in a tax return, gives you palpitations and makes you wide-eyed with fright, fear not. For most of us, tax is a fairly simple deduction of some money from our income (or whatever) by the government. There are only a few types that need usually concern individuals: income, capital gains, inheritance tax and stamp duty. The tax rates might change over the years, but the basic principles remain the same. You can find the current rates on HM Revenue & Customs website: www.hmrc.gov.uk.
Capital Gains Tax – CGT
You are allowed to make a few thousand pounds every year tax-free on anything you buy and are lucky enough to make a profit on. The threshold changes yearly. Those fortunate enough to have more than one home pay CGT on the profits of the one that is not their main residence when they sell it. Ways of skilfully avoiding CGT include bed and partnering (see Bed and Partner) and using your ISA allowance (see Individual Savings Account – ISA). Some entrepreneurs who back new businesses take advantage of Venture Capital Trusts (VCT) and Enterprise Investment Schemes (EIS), which are supposed to be CGT-efficient. I’d get expert advice on things like this, as they are most often high-risk (see Enterprise Investment Scheme, Venture Capital Trust).
But, you cry, I bought some British Telecom shares ten years ago and I’m sitting on a massive profit. They’re not protected by a tax-free coating, and I really need the cash; if I sell the shares I’m going to be clobbered for CGT. Oh no, what do I do? Well, don’t panic. The government has addressed the problem to some extent, in that the longer you’ve held the shares or whatever, the less tax you pay when you come to sell the assets. It’s called tapering. Don’t fret too much about the details, because if you really get into a flap about this, you can always ask an accountant or your local tax office to explain all – and yes, the guys at HM Revenue & Customs really are friendly, and the advice is free!
Corporation Tax
This is the tax that is deducted from the trading profits, gains and income of companies and that has to be paid to HM Revenue & Customs. You’ll be glad to know that smaller companies pay a lower rate of corporation tax than the big ones.
Deferred Tax
Tax that you owe HM Revenue & Customs, but which need not be paid until a later date. In a company’s accounts, it is something that shows up under the ‘Notes to the Accounts’ section as a ‘provision’. If you are a fervent accounts fan, you will also note that deferred tax pops up as a future liability that has to be paid, but is not currently due.
Income Tax
The dreaded inescapable tax that pretty much all of us have to pay. It is tax paid to the government and collected by HM Revenue & Customs on all our income. This includes what we earn as well as any extra unearned income that we are lucky enough to get, such as dividends from shares, interest on savings, or income from letting a property; the list goes on and on. The vast majority of us pay our income tax through the pay packet using the Pay as You Earn (PAYE) scheme and around 10 million self-assessment tax returns are also issued each year.
Many of us get into a terrible flap at the merest thought of tax and don’t realize that it’s not as awful as it seems. Those who immediately pop the nice little self-assessment form that HM Revenue & Customs so obligingly sends us straight into a drawer will not know the full gamut of types of income, and the fact that, like it or not, we have to pay income tax on them. If you fall into this category, procrastinate no more. Learn the pleasures of discovering the self-assessment form and caress it lovingly; it’s not as scary as it looks.
The actual rate of income tax isn’t all that bad. In fact, it’s pretty favourable compared with what’s paid by people in many other countries. The first few thousand of your income is tax-free (HM Revenue & Customs will wince at that notion!) as it’s your personal allowance. This varies according to age and circumstances. Then there are three tiers of tax payable, depending on your earnings, with the top rate of tax being 40 per cent for the lucky folks who earn more than a certain amount (currently £32,400 per annum) above their personal allowance. It’s simple, isn’t it? Can’t see what all the fuss is about. If you are still in a tizz over the notion of income tax and freak out even at the thought of paying it, contact your local HM Revenue & Customs office and ask for their help. Amazingly, they are human, just like you and me, and will be only too pleased to guide you through the tricky bits. And no, I am not being paid a penny by them to tell you how lovely they are!
Independent Taxation
This means that married women are taxed independently of their husbands. The obvious corollary to this is that the wife’s tax-free allowance is completely independent of that of her husband. The married couple’s allowance is now only available to couples where one partner was born before 6 April 1935.
Inheritance Tax
Doom and gloom. This extremely unfair tax - I reckon this is an invidious form of double taxation! – basically lops off a large chunk from any inheritance that might be left to you by deceased family, friends or even total strangers. The threshold at which this kicks in changes every year with the government’s budget; the current rate is 40 per cent and the threshold is £275,000. All those of you shackled, I mean, happily married to someone have the cold comfort of knowing that if your spouse drops off the perch, you’re not liable to pay inheritance tax on what they leave behind.
Stamp Duty and Stamp Duty Land Tax
You pay this either when you buy shares already traded on the stock market, or when you are buying a property. You’ll be grateful to know that you don’t pay it when you sell the assets. The rate of SDLT was changed in 2005 so that properties priced under £120,000 do not incur the charge.
Tax Credit
Next time you get a tax voucher from, say GlaxoSmithKline (hopefully with a cheque attached!), take a good look at it. It’ll inform you how much the net dividend was, which is the amount on the cheque. The tax credit is the notional amount of tax that you would receive if you were being paid the full amount of a dividend (ie, gross) by a company whose shares you own. HM Revenue & Customs very considerately deducts 10 per cent tax at source. Since 6 April 2004, ISA managers can no longer reclaim the dividend tax credit on behalf of ISA-holders (see Individual Savings Account -ISA).
Tax Relief
The government gives tax relief, ie, rebates tax on things it wants to encourage us to do. As it doesn’t want us sponging off its finances in old age, it offers us heavy incentives to save for this far-flung time via our pensions. A good example of ‘maximum tax relief’ is our pension contributions (see Pension).
Tax Return
The dreaded self-assessment era means that for millions, the onus is on us to work out our tax bills. Rest assured that you are not the only one who is frozen with fear, like a rabbit in headlights, at the prospect. People far more financially sophisticated than you or me balk at the mere thought of completing one of these. But help is at hand – the boys and girls at HM Revenue & Customs are not the ogres they may seem to be and if you are struggling, just contact your local branch and ask to speak to someone who will be surprisingly nice and human about things, doing his or her level best to explain how you should do it. Fill out the forms I mean! If you’re a dab hand with the internet, you can complete a self-assessment form using the free software on the HM Revenue & Customs’ website: www.hmrc.gov.uk. There are also commercial computer programs that simplify this frankly odious task. And if all else fails, hire an accountant to do the number crunching for you!
Technical Analysis
Also known as chartism. This is the rather grand description of City analysts looking at pretty little pictures of share price movements in graphic form. The aim is to try to guess what is going to happen next to a company’s shares by analysing historical price patterns. Technical analysts are like City analysts. Only instead of visiting companies and crunching numbers, ie, analysing the ‘fundamentals’ of a company, which is what the fundamental analyst does, the technical analyst swears by his or her patterns and charts. When used in combination with fundamental analysis, charts are a very useful tool for investors because they illustrate price trends and investor behaviour in the shares of a company (see Analyst, Fundamentals/Fundamental Analysis).
Thin Market
A euphemism for ‘I can’t sell those bloody shares you told me to buy!’ I am not an ardent fan of buying shares in which there is a thin market. It means that there is not much demand for them. The thing to remember is that in a rising market, the price of ‘thinly traded’ shares rockets with frightening speed. Similarly, in a falling market, they plummet, may take forever and a day to sell, and you are likely to get a pretty awful price for them (see Alternative Investment Market – AIM, Beta, Illiquid, Liquid, Ofex, Volatility).
Tied Financial Adviser
Someone you might like to tie to a pair of concrete boots and throw in the river, if they’ve given you bad advice about your pension! Unlike an independent financial adviser, a tied one is, as the name implies, tied to a particular company that sells its own financial products, such as endowments, life assurance, etc. These people earn commission on this advice, so the onus, I am afraid, is on you to decide whether the adviser’s products are suitable for you or not (see Commission, Independent Financial Adviser).
Tombstone
A very large advertisement in a serious newspaper like the Financial Times or the Wall Street Journal. In it will be a long list of banks and financial conglomerates that proudly proclaim their involvement in a particular financial deal.
Top Down
An approach to investing that involves the fund manager using the political and economic background of a country to guide him or her into certain sectors or shares. Here the risk is that he is not protected in the event that he decides to invest in a company with poor management. This is because top-down investing doesn’t involve sussing this info out (see Bottom Up).
Tracker Funds
Also called index tracker funds. A ‘tracker’ is a collective fund of many small investors’ money, which is passively managed by professional fund managers. This means that it is invested to reflect the performance and behaviour of a financial index. An example is the FTSE 100 index. Trackers can, however, match the criteria of any index in the world. A FTSE 100 tracker is obliged to own FTSE 100 shares in equal proportion to the way they appear in the index. The appeal to a lot of investors is that they have the security of knowing that money put into trackers will perform broadly in line with the market, so in theory at least, there’ll be no nasty surprises.
Historically trackers have tended to outperform ‘actively’ managed funds and the costs are low, because the fund is not being ‘actively’ managed. If the market goes up, investors will be delighted. If it drops, the smile will vanish from the investor’s face, because this type of fund cannot use whiz-kid fund managers to nimbly hop out of shares that look as if they’re about to fall off a cliff. Hence the disadvantage of these funds is that they are not as flexible as actively managed funds. They suit people who don’t really want to pay much attention to the stock market as a whole, but do want some exposure to (preferably) blue chip shares (see Active Management, Blue Chip).
Trader
A few minutes are a very long time in a trader’s life. Traders have developed the concept of ‘living for the moment’ into a high art form. Whereas you or I buy shares with a view to holding on to them for a while, at least months, if not years, a trader buys and sells millions of pounds worth of shares or bonds, or whatever, all day long, with the same nonchalance as if he were trading cabbages and carrots in the local fruit and veg market. But the job isn’t as easy as it looks. The real hotshot traders are incredibly wired all the time to what’s happening now in the market, as well as what’s going on in the big world picture. An obscure event that happens thousands of miles away can have repercussions on a locally traded share (or other financial instrument), and these guys have to respond instantaneously. It’s a mind-blowingly stressful existence, with daily pressure to perform, ie, make grillions for the firm. If traders make vast profits for their employers, they’re handsomely rewarded. Porsche, mega-bonus, they only have to snap their fingers and they’ll get it. If they start to do badly, they’re fired. A very precarious existence with no job security (see Arbitrage, Day Trader, Market-Maker, Trading).
Trading
As opposed to investing, this is buying something with a view to shifting it on to someone else, hopefully at a profit, just as fast as you can (see Trader). You will have gathered by now that I am not a keen advocate of trading. I acknowledge that some people have a natural flair for this sort of thing and do it very successfully. I don’t, so I stick to plain vanilla methods, investing slowly and carefully for the long term, with a bit of excitement at the edges to alleviate the boredom.
Treasury Bill
Also called a T-bill, Treasury bond and a T-bond, this is the US equivalent of a UK gilt. T-bills are the most widely held bonds in the world (see Bonds, Gilts).
Trust
A company that is often created offshore (for reasons of tax-efficiency), which entrusts all the assets in it to be looked after by trustees (see Trustees). The point about trusts is that the capital or assets in them are supposed to be safe from marauding pirates who like the idea of looting a few million for themselves. Wealthy individuals or companies set these up so that the assets placed in the trusts can be safeguarded in perpetuity.
A family trust or equally a financial group, such as a unit trust, are legal trusts like this, but investment trusts are not (see Investment Trust, Unit Trust).
Trustees
People who are considered responsible and trustworthy enough to act as executors or guardians of a trust.
Turnover
Other words for the same thing are sales and revenue. They all refer to the total sales invoiced to a company’s customers in its financial year. The number excludes VAT and shows up in the balance sheet of the company’s annual report and accounts (see Accounts).
