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Capital assets |
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Capital AssetsAssets of a permanent nature used to produce income, such as machinery, buildings, equipment, land, etc. Must be distinguished from inventory. A machine which makes pencils, for example, would be a capital asset to a pencil manufacturer, but inventory to the company whose business is to sell such machines.Capital assetsAssets, purchased as a long term investment for generating profit, such as buildings, plant and machinery and fixtures etc.Similar MatchesSplit capital investment trustSplit capital investment trustAn investment trust with a limited life, in which the equity capital is divided into two classes - income shares and capital shares.Holders of income shares receive the majority of the trust's income throughout its life and a specified capital amount on liquidationHolders of capital shares receive virtually no income during the trust's life but on liquidation receive all the assets after repayment of capital to holders of income shares. In other words they get the benefit of most of the capital growth.The raison d'etre of split capital investment trusts is that a single trust can accommodate the requirements of two types of investor in one fund, and provide better performance for both than they would be able to achieve if they invested in separate funds.It works like this:Ian Illingworth has £10,000 to invest and wants to get maximum income from it. He buys 'Income Shares' in the Split.Colin Casey has £10,000 to invest and wants to get maximum capital growth from it. He buys 'Capital Growth Shares' in the Split.The Split invests their pooled money and during the lifetime of the trust pays out all the income to Ian. At the end of the Split's life, when the capital value of the fund has risen to, say, £60,000, it pays Ian back his £10,000, and pays £50,000 to Colin.How have Ian and Colin benefited?Ian has benefited because for 7 years he has received the income on £20,000 even though he only invested £10,000.Colin has benefited because he has received the capital growth on £20,000 even though he only invested £10,000 and, being a higher-rate taxpayer, it has suited him very well not to have received any income on his £10,000 in that time.Basically, it is as if Ian said to Colin 'You have the capital growth on my £10,000' and Colin said to Ian 'Fine, I'll give you the income on my £10,000 in return.'There are many other classes of share within splits, and the thinking behind them gets progressively more complex. It is also important to note that Splits are geared investments (they can borrow money) which, depending on performance, can either be beneficial or detrimental to investors. If you are interested in what they have to offer it is essential to get specialist advice. Capital lossCapital lossThe difference between the net cost of a security and the net sales price, if the security is sold at a loss. Financial capitalFinancial capitalThe value of financial assets, as opposed to real assets such as buildings and capital equipment. Capital gainsCapital gainsProfits an investor makes from the sale of real estate or investments. Capital intensiveCapital intensiveUsed to describe industries that require large investments in capital assets to produce their goods, such as the automobile industry. These firms require large profit margins and/or low costs of borrowing to survive. Further SuggestionsNet capital requirementcapital gains tax loan capital Working capital Venture capital limited partnership Total capitalization Paid in capital Working capital management Unrealized capital gain or loss capital Capital-using capitalisation issue Capital surplus Capital depreciation Other capital Capital Fulcrum Point Capital intensive Maximum capital gains mutual fund capitalisation Capital flight Perfect capital market Capital requirements Capital allocation decision issued share capital Perfect capital mobility |
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