Generic Questions/Analysis Flashcards

Question 1

Q

State the main factors that would typically influence a client’s attitude towards investment risk.

(10 marks)

Answer

A

Age of investor
Timescale
State of health
Objectives of investment/income or growth
Income/expenditure/disposable income/affordability
Assets/investments/level of wealth
Liabilities
Experience/understanding of investments
Change in personal circumstances, E.g. job change, children, etc.
Amount of investment available

Question 2

Q

State the main factors that would typically influence a client’s attitude towards investment risk.

(10 marks)

Answer

A

Age of investor
Timescale
State of health
Objectives of investment/income or growth
Income/expenditure/disposable income/affordability
Assets/investments/level of wealth
Liabilities
Experience/understanding of investments
Change in personal circumstances, E.g. job change, children, etc.
Amount of investment available

Question 3

Q

What are the potential benefits of receiving and acting upon advice from a qualified financial adviser?

(10 marks)

Answer

A

Financial problems, goals and priorities will be identified.
Benefit from adviser’s research.
Help with budgeting/cash flow.
Assessment of suitability of existing arrangements.
Tax planning, use of tax wrappers or tax efficiency.
Assessment of attitude to risk and capacity for loss.
Receive recommendations/create a financial plan.
Dealing with professional/knowledge/clarity of explanation.
Ongoing service/reviews.
Consumer protection/regulated advice.

Question 4

Q

List 4 benefits and 4 drawbacks of paying adviser fees for initial/ongoing service on an hourly cost basis.

(8 marks)

Answer

A

BENEFITS:

Familiar or same as other professions.
Easy to understand and compare.
Based on actual work undertaken, amount invested is irrelevant - cheaper for large sums for example.
Fee cap can apply.

DRAWBACKS:

Can be seen as inefficient or adviser ‘running up the clock’.
May put clients off making contact or asking for advice.
Paid from personal funds.
Unknown total cost.

Question 5

Q

List 4 benefits and 4 drawbacks of paying adviser fees for initial/ongoing service as a fund-based fee.

(8 marks)

Answer

A

BENEFITS:

Can negotiate lower fees for larger investments.
Payment can be taken from provider as opposed to using personal funds.
Incentive for adviser to grow investment.
Attractive for lower amounts/lower fees for lower amounts.

DRAWBACKS:

Difficult to predict each year (fund value will vary).
May not be in line with service provided, not reflecting time spent or larger portfolios not generally harder to administer.
Extra charges may apply for other services.
Reduces potential investment growth.

Question 6

Q

List 4 benefits and 4 drawbacks of paying adviser fees for initial/ongoing service on a fixed fee basis.

(8 marks)

Answer

A

BENEFITS:

Familiar or same as other professions.
Known cost.
Easy to understand and compare.
Amount invested is irrelevant/cheaper for large sums.

DRAWBACKS:

Is fee justifiable?
Paid from personal funds.
May put clients off making contact or asking for advice.
Exactly what is included?

Question 7

Q

Explain the benefits of a current cash flow statement when devising a financial plan.

(5 marks)

Answer

A

Shows difference between expenditure and income.
Highlights areas for cost reduction.
Identifies opportunities to fill gaps in planning/establish planning budget.
Can be used to analyse future cash flows/retirement cash flows and contingent cash flows/loss of income clients’ ill health/death.
Enables the client to understand the long term impact of large expenditure.

Question 8

Q

Outline the key information that should be taken into account by a financial adviser when building a lifetime cash flow model to help clients plan their future income needs.

(9 marks)

Answer

A

Current income needs/future income needs.
Planned capital expenditure.
Current assets/current income/level of guaranteed income.
Growth rate assumptions/interest rate assumptions/charges.
Inflation assumptions.
Attitude to risk/capacity for loss.
Longevity/health.
Market corrections/estimates of market falls/stress test.
Impact of death of either client.

Question 9

Q

Explain the limitations of cashflow modelling and why clients should not rely on this as a sole method of future income needs.

(9 marks)

Answer

A

Provides estimates only/snapshot of current situation.
Inflation assumptions can be incorrect.
Growth assumptions may not be achieved/investment returns not guaranteed.
Personal circumstances may change/ill health/loss of income/objectives can change.
Tax rules may change.
Attitude to risk may change/capacity for loss may change.
Charges/fees can change.
Regular reviews required/needs to be updated regularly.
Input errors/misunderstanding of information by clients or adviser.

Question 10

Q

What is meant by the term ‘risk profile’?

(3 marks)

Answer

A

It is the level of fluctuation/volatility that clients are prepared to accept in their investment/pension portfolio.
Holding investments that are higher risk than their risk profile may result in unacceptable losses in poor market conditions.
If investments are lower risk than they are prepared to accept they may miss out on higher returns.

Question 11

Q

State the main factors that might influence a client’s attitude towards investment risk?

(10 marks)

Answer

A

Timescale
Income/expenditure/disposable income/affordability.
Assets/investments/level of wealth.
Liabilities.
Amount of investment available.
Age of investor.
Experience/understanding of market/investments.
State of health.
Objectives of investment, e.g. income/growth.
Change in personal circumstances/marriage/death/job change.

Question 12

Q

Outline the process that an adviser should follow to determine a client’s ATR by the use of a risk profiling tool.

(6 marks)

Answer

A

Clients each complete a risk profile questionnaire.
This focuses on timescales/priorities/responses to circumstances.
Generates a risk score.
Score provides further discussion with client/used to produce asset allocation.
Ascertain capacity for loss.
Adviser and client(s) agree a suitable risk profile.

Question 13

Q

Why should an adviser not rely solely on a computer-based risk profiling tool to confirm a client’s ATR?

(6 marks)

Answer

A

Different results for each client would require further discussion.
Different programs produce different results.
Clients may not be able to relate to the content of the questionnaire.
Potential for clients to misinterpret/misunderstand question.
Will be unsuitable if clients have a zero capacity for loss.
Different risk may be in evidence for different objectives/timescales.

Question 14

Q

Identify the factors relating to a client’s circumstances that would typically influence their attitude to investment risk.

(12 marks)

Answer

A

Age.
Income.
Timescale.
Health.
Any disposable income/existing assets/adequate emergency fund/amount available to invest.
Any inheritances.
Any protection policies in place.
Any state pension entitlement.
Investment experience/knowledge.
Objectives/priorities.
Economic environment/market conditions.
Tolerance for loss/capacity for loss.

Question 15

Q

Explain the importance of reviewing client attitudes to risk on a regular basis?

(7 marks)

Answer

A

ATR may differ for different objectives/retirement/clearing mortgage.
Changes based on investment experience/knowledge.
Changes based on personal circumstances/health.
Changes based on income/recent inheritance.
Changes as they get older/changes over time.
Fund performance/market performance/ensure investments match ATR.
The risk they can afford to take/capacity for loss.

Question 16

Q

Why is diversification important?

(4 marks)

Answer

A

Diversification can reduce risk in a portfolio by holding a different range of assets.
Each different investment can perform well in certain market conditions.
The downside risk of one investment can be offset by the upside potential of another investment.
Diversification can reduce stock specific risk (non-systematic risk) but not market risk (systematic risk).

Question 17

Q

State the limitations of using an asset allocation model.

(6 marks)

Answer

A

Doesn’t recommend an appropriate tax wrapper/take account of client’s tax position.
Charges are not considered.
Questions asked aren’t always relevant.
Different models produce different results.
Underlying assumptions subject to change/based on historic data.
Needs to be reviewed.

Question 18

Q

Explain how a salary sacrifice arrangement may work.

(3 marks)

Answer

A

Salary is reduced by the amount of pension contribution.
Employer pays this into the pension scheme as an employer contribution.
Employer might also add the NICs saved.

Question 19

Q

Explain how a salary sacrifice arrangement may work.

(3 marks)

Answer

A

Salary is reduced by the amount of pension contribution.
Employer pays this into the pension scheme as an employer contribution.
Employer might also add the NICs saved.

Question 20

Q

List the benefits of an employer offering salary sacrifice.

(4 marks)

Answer

A

Reduces employee’s and employer’s NICs.
Increases pension benefit without affecting net pay.
The employer may invest their NIC saving into employee’s pension.
Can help some taxpayers with personal allowance reduction saving income tax.

Question 21

Q

List the drawbacks to an employer offering salary sacrifice.

(7 marks)

Answer

A

Salary is reduced which may affect borrowing capacity (e.g. mortgage).
Maximum benefits on income protection insurance may be reduced.
The arrangement cannot be binding on the employer.
May impact on future salary increase.
May reduce level of employee benefits such as death in service benefits.
May impact on entitlement to state benefits.
Extra paperwork/administration.

Question 22

Q

What are the benefits of using flexi-access drawdown rather than annuities?

(6 marks)

Answer

A

Potential growth/stay invested.
Flexible income.
Tax efficient income.
IHT free/outside of estate.
Annuity rates may improve/no mortality drag.
Choice of successor/flexible death benefits.

Question 23

Q

What are the drawbacks of using flexi-access drawdown rather than annuities?

(6 marks)

Answer

A

Increased fees/charges.
Investment risk/loss of mortality gain.
May fritter funds/deplete funds before death.
Need advice/complex/reviews.
Income not guaranteed.
Triggers MPAA.

Question 24

Q

What is the ‘safe withdrawal rate’?

(4 marks)

Answer

A

A strategy to establish how much can be withdrawn to ensure the fund doesn’t run out.
Rule of thumb to use 30-year time period and a safe withdrawal rate of 4%.
These figures are sensitive to asset allocation.
Rate should be adapted to ATR.

Question 25

Q

What is stress testing?

(3 marks)

Answer

A

How a portfolio might perform in a downturn.
Could client cope if capital ran out completely.
Could they manage on a lower income during a downturn/ensure capital is not too depleted.

Question 26

Q

Explain why it might be more suitable to make monthly contributions into a pension instead of lump sums.

(5 marks)

Answer

A

Pound cost averaging.
Benefit from investment volatility.
Can stop and start contributions/flexibility/convenience.
Assists with budgeting.
Reduces risk of poor investment timing.

Question 27

Q

Describe the process an adviser could use to ensure there are sufficient funds under an existing pension plan to provide the required level of target benefits.

(7 marks)

Answer

A

Establish the income required, allowing for inflation.
Calculate the fund required based on assumed/agreed annuity rate.
Allow for PCLS requirement.
Calculate existing benefits at retirement age using assumed or agreed growth rate.
Include ongoing funding.
Calculate the shortfall and the increased contributions required.
Ongoing reviews needed.

Question 28

Q

What are the benefits for a client of holding investments on a platform?

(16 marks)

Answer

A

Easy access online at all times.
Total wealth can be seen at the press of a button.
Wide range of providers/asset classes/funds/investments/tax wrappers.
Performance is easy to obtain.
Full details of investments - online switching.
Consolidated tax statements are automatic.
Time and effort efficient for the client/their accountant for tax returns.
Can promote good relationship with the adviser.
Management of family assets - discounts of their charges.
Unbundled charging/transparent charges.
Funds can usually be bought without an initial charge.
Large portfolios can attract volume discounts (e.g. large fund discount).
Calculation tools.
Reduced paperwork.
Reports and valuations can be stored online.
Automatic rebalancing.

Question 29

Q

What are the main features and tax advantages of investing in a Venture Capital Trust (VCT)?

(7 marks)

Answer

A

Functions as an investment trust but at least 80% of its value must be unlisted shares (includes AIM listed shares).
The VCT must be listed on the London Stock Exchange.
Tax relief at 30% on investment of up to £200,000 per tax year.
This is a tax reducer.
Tax relief reclaimed if investment not held for 5 years.
No income tax liability on dividends received.
No CGT liability on gains - no minimum holding period.

Question 30

Q

What are the main features and tax advantages of investing in an Enterprise Investment Scheme (EIS)?

(6 marks)

Answer

A

Investment into a single company.
Tax relief at 30% on investment of up to £1,000,000 per tax year (£2,000,000 if a knowledge intense company).
This is a tax reducer.
Tax relief reclaimed if shares sold within 3 years.
No liability to CGT.
Dividends are taxable.

Question 31

Q

What is a multi-asset managed fund?

(1 mark)

Answer

A

A fund that invests in other funds (fund of funds) or in funds made up of shares, bonds, and cash (a mixed investment range).

Question 32

Q

What are the requirements for making a valid Will?

(7 marks)

Answer

A

The testator (clients) must be of sound mind.
There must be a clear intention to dispose of property.
They must be at least 18.
It must be in writing (typed or handwritten).
It must be signed by them as testators.
It must be signed by a minimum of two witnesses - who are not executors or beneficiaries.
The witnesses must be present when the testators sign.

Question 33

Q

In the event of either of a couple’s death, describe the process of how their estate will be settled if they do not make a Will and identify the potential problems that could arise.

(6 process marks and 4 potential problem marks)

Answer

A

PROCESS:

Administrators will need to be appointed.
They apply for letters of administration.
Debts will need to be paid.
The estate is then valued.
The IHT liability is calculated and must be paid within 6 months.
The IHT must be paid before the estate is distributed.

POTENTIAL PROBLEMS:

Not having a Will causes delays.
The estate does not pass in a way they might want.
They cannot state their wishes re funeral arrangements/guardians for children etc.
Court decides custody of children if no guardians.

Question 34

Q

What are the duties of Trustees?

(9 marks)

Answer

A

To hold trust property and to administer it for the benefit of the beneficiaries.
Hold the title documents to any trust property.
Everything they do must be for the benefit of the beneficiaries.
Invest any cash wisely or pay it out to a beneficiary immediately.
Take account of the standard investment criteria.
Monitor investments.
Avoid conflicts of interest.
Use utmost diligence.
Keep proper accounts.

Question 35

Q

What are the conditions for a deed of variation to be valid?

(13 marks)

Answer

A

A deed of variation must be drawn up within 2 years of death to be IHT effective.
Only those giving up benefit need to sign the deed.
All beneficiaries must agree.
All beneficiaries must be at least 18.
All beneficiaries must be of sound mind.
The deed must refer specifically to the Will.
The deed must state that is it to be effective for inheritance tax purposes.
The deed must state who the bequest is being re-directed to.
Must be in writing/legal document.
Deed states what is being varied in Will/intestacy, the ‘what’.
It will be treated as taking place on the donor’s death.
The deed should not be for consideration of money or money’s worth.
The deed should contain a statement that the variation is to have effect for either CGT, IHT, or both.

Question 36

Q

If a client earns over £60,000 and are entitled to Child Benefit, what will be the tax implications if they receive it?

(3 marks)

Answer

A

As they earn over £50,000 they will be liable for the High Income Child Benefit charge.
As their income exceeds £60,000, they will have an additional income tax charge.
This will be equal to the Child Benefit received.

Question 37

Q

State the process that a financial adviser should follow when providing appropriate financial advice.

(8 marks)

Answer

A

 Establish/define relationship/confirm scope of service/fees

 Fact-find/obtain goals and objectives/confirm capacity for loss/ATR

 Analyse current situation/existing investments/identify shortfalls

 Develop financial plan/research

 Present financial plan/recommendation/discuss

 Provide suitability report/information documents

 Implement plan/obtain client agreement

 Monitor/review.

Question 38

Q

Explain the process a financial adviser should follow to establish a client’s aims and objectives.

(9 marks)

Answer

A

 Recognise needs and objectives

 Help clients understand general aims and specific objectives

 Ask open and closed questions/obtain hard and soft facts

 Ensure objectives are SMART

 Identify which are short-term/long-term/emphasis importance of long-term needs

 Establish views on family/dependents

 Establish timescales

 Quantify and qualify objectives

 Prioritisation/different views/not feasible to achieve all goals

Question 39

Q

Explain how lifetime cash flow modelling is used.

(3 marks)

Answer

A

 Lifetime cash flow projections are used to forecast clients’ income and expenditure profiles over the long term

 They provide a year-by-year summary of cash paid to and paid out by the client, showing the years where there will be a surplus or a deficit.

 The main variables are:
o The level of income and capital inputs
o The level of expenditure
o Assumptions made about future increases in income, capital values, spending and
inflation
o Projections can then be amended to include the effect of recommendations

Question 40

Q

Explain the importance of reviewing attitudes to risk on a regular basis.

(7 marks)

Answer

A

 ATR differs for different objectives

 Changes based on investment experience/knowledge

 Changes based on personal circumstances/health

 Changes based on income/any recent inheritance

 Changes over time

 Fund performance/market performance/ensure investments match ATR

 Capacity for loss

Question 41

Q

What does Term Assurance provide?

(2 marks)

Answer

A

 Tax-free lump sum on death during term

 (Usually includes Terminal Illness benefit)

Question 42

Q

What does Critical Illness cover provide?

(1 mark)

Answer

A

 Tax-free lump sum upon diagnosis of critical illness after survival period of up to 30 days

Question 43

Q

Types of Term Assurance?

(7 marks)

Answer

A

 Level
 Increasing
 Term 100
 Decreasing
 Increasable
 Renewable
 Convertible

Question 44

Q

Types of CIC?

(2 marks)

Answer

A

 Standalone or combined with life assurance
 Free children’s cover

Question 45

Q

Options of Term Assurance?

(2 marks)

Answer

A

 Waiver of Premium
 Can include CIC

Question 46

Q

Options of CIC?

(4 marks)

Answer

A

 Reviewable (every 5 or 10 years) or guaranteed premiums

 Sum assured can be index linked (set % or in line with inflation - no further underwriting)

 Waiver of premium

 Life cover buy-back

Question 47

Q

Can Term Assurance be written in Trust?

(1 mark)

Question 48

Q

Can CIC be written in Trust?

(1 mark)

Answer

A

 Life and earlier CIC policies should use a split benefit trust

Question 49

Q

What is Level Term Assurance?

(1 mark)

Answer

A

 Fixed sum assured throughout term

Question 50

Q

What is Increasing Term Assurance?

(2 marks)

Answer

A

 Sum assured increases throughout term

 Either on fixed % or in line with index such as RPI

Question 51

Q

What is Term 100 Assurance?

(1 mark)

Answer

A

 Written to age 100 (can be used as alternative to whole of life)

Question 52

Q

What is Decreasing Term Assurance?

(5 marks)

Answer

A

 Sum assured reduces each year in pre-determined way

 Used to protect a capital and interest mortgage

 Inter vivos to cover potential IHT liability on recipient of PETs – sum assured reduces in line with effects of taper relief

 Family income benefit - sum assured is an amount paid each month/quarter/year from date of death until end of policy term

 May be able to commute regular payments for a lump sum

Question 53

Q

What is Increasable Term Insurance?

(1 mark)

Answer

A

 Sum assured can be increased without underwriting

Question 54

Q

What is Renewable Term Assurance?

(3 marks)

Answer

A

 Usually for a 5-year term at outset

 At end of term a new 5-year policy can be started without underwriting (premium likely to be higher)

 Premium will be based on age at renewal

Question 55

Q

What is Convertible Term Assurance?

(2 marks)

Answer

A

 Policy can be converted into a whole of life or endowment with same or lower sum assured without underwriting

 Premium for new policy will be based on age at conversion

Question 56

Q

What is Income Protection?

(1 mark)

Answer

A

Regular tax-free income when unable to work due to accident/ illness

Question 57

Q

Deferred periods for Income Protection?

(5 marks)

Answer

A

Deferred period (4, 13, 26, 52 or 104 weeks)

Question 58

Q

When is Income Protection paid until?

(1 mark)

Answer

A

Paid until return to work, retire, death or policy ends

Question 59

Q

Income Protection - Rehabilitation Benefit?

(1 mark)

Answer

A

Rehabilitation benefit - proportionately reduced benefit to top up earnings when someone returns to work but on a part time basis

Question 60

Q

Income Protection - Proportionate Benefit?

(1 mark)

Answer

A

Proportionate benefit - reduced benefit equivalent to reduction in earnings for those who return to work but in a lower paid job

Question 61

Q

Is there a limit on how many times you can claim under an Income Protection policy?

(1 mark)

Answer

A

No limit on claims

Question 62

Q

What percentage of your income does Income Protection pay out?

(1 mark)

Answer

A

Benefit limited to 50-65% pre-claim income

Question 63

Q

Income Protection - 2 types of occupation?

(2 marks)

Answer

A

Own occupation (widest cover) or any occupation

Question 64

Q

What 2 types of premiums can you have under an Income Protection policy?

(2 marks)

Answer

A

Guaranteed or reviewable premiums

Answer 64

A

Automatic waiver of premium

Answer 65

A

Tax-free income if insured has accident or can’t work due to sickness

Answer 66

A

Benefit limited to set % of earnings and a monthly max amount

Answer 67

A

Usually annual contract but can be for shorter periods – can be cancelled by the insurer

Answer 68

A

Shorter deferred period but will only pay benefit for 1 or 2 years

Answer 69

A

Standalone or bolt on to household, motor or travel insurance

Answer 70

A

Refund of medical expenses

Lump sum payments for loss of limb, loss of sight etc.

Answer 71

A

Tax-free income if insured has accident or can’t work due to sickness or unemployment

Answer 72

A

Usually annual contract but can be for shorter periods – can be cancelled by the insurer

Answer 73

A

Max benefit payment period 2 years

Answer 74

A

Pre-existing medical conditions, excluded

Benefit limited to set % of earnings and a monthly max amount

Possible lump sum payments for loss of limb, loss of sight etc.

Answer 75

A

Amount to cover mortgage if insured has an accident or unable to work due to sickness accident or involuntary unemployment

Answer 76

A

Benefit payable for at least 6 months but probably limited to maximum of 1 or 2 years

Answer 77

A

Deferred period – often 30-180 days

Answer 78

A

Must cover self- employed

MPPI cannot be sold at the same time as a mortgage

Minimum standards set by ABI & CML

Answer 79

A

Covers costs of private treatment e.g. consultant fees, investigations, treatment, accommodation costs

Answer 80

A

 Indemnity policy - can only claim back expenses incurred

 For acute conditions (not chronic conditions that are incurable)

 May need to pay excess or co-payment

 Basic plan usually restricted to accommodation, drugs, dressings, and doctor’s fees

 Mid-range covers more items, longer claim periods and higher limits

 Comprehensive plans have longer claim periods, higher limits, and often wider choice of hospital. Home nursing and private ambulance usually covered. May also include alternative medicine, dental treatment. Policies can cover whole family not just one person

 Treated as a benefit in kind if premiums paid by employer.

Answer 81

A

 Use PCLS or savings to pay a lump sum to an insurance company

 This is irrevocable/inflexible

 Annuity rate agreed for lifetime/fixed term/underwriting required

 Income paid as a mix of return of capital and income

 Return of capital is tax free

 Income element is taxable as savings income

 Can use his personal savings allowance

 Tax is deducted at source by insurance company

 Escalation is available

 Joint life available

 Capital guarantee available

Answer 82

A

Minimum 80% in unquoted companies including AIM

Maximum 15% in one company with a minimum of 10% in ordinary shares

Answer 83

A

Exempt from Income Tax from VCT investments of up to £200,000 per tax year

Answer 84

A

30% on first £200,000

Answer 85

A

None (no holding period)

Answer 86

A

Forms part of estate as normal.

Answer 87

A

Investment in unquoted trading companies including AIM companies

Answer 88

A

Liable to Income Tax

Answer 89

A

30% up to a max of £2m - any amount over £1m must be invested in knowledge intensive companies

Answer 90

A

Free - after 3 years

Answer 91

A

100% business relief after 2 years.

Answer 92

A

Designed to help small start- up unquoted companies raise finance

Answer 93

A

Liable to Income Tax

Answer 94

A

50% on first £100,000

Answer 95

A

Free - after 3 years

Answer 96

A

Yes - 50% exempt of the re-invested amount

Answer 97

A

100% business relief after 2 years.

Answer 98

A

 Disclose status/fee/client agreement.

 Fact-finding/goals/objectives

 Attitude to risk/capacity for loss

 Analysis of the client’s situation/affordability

 Undertake research

 Formulate recommendation/develop plan

 Make a presentation/recommendation to client

 Implement/suitability letter

 Annual review/monitor

Answer 99

A

 Fact-finding/knowing your client/client agreement

 Assess attitude to risk/capacity for loss

 Timescale

 Charges

 Performance

 Fund choice available

 Asset allocation/diversification

 Select fund to match attitude to risk

 Present client with documentation

 Obtain client permission/implement

 Suitability Letter/recommendation letter to client

Answer 100

A

 Letter of authority/obtain plan details

 Confirm date of purchase

 Base cost/any further investments/withdrawals/fund switches

 Identify reinvested income

 Calculate gain/performance history

 Assess asset allocation

 Identify suitable benchmark

 Identify Alpha/compare against benchmark

 Review charges

 Comparison with risk-free return/risk adjusted return

 Review volatility/risk rating of fund

 Assess funds against attitude to risk/capacity for loss

Answer 101

A

PET
IHT free after 7 years
No IHT initially as it’s a PET
Beneficiaries CANNOT be changed.
When can Beneficiaries benefit? Beneficiaries can demand the trust fund at age 18.
Income is taxed on the beneficiary using their own rates and personal allowance
Capital gains are taxed on the beneficiary using their rates and full annual exempt amount
IHT liability on the settlor if death occurs within 7 years of the PET.

The trust fund forms part of the estate of the beneficiary if they should die.

Answer 102

A

Chargeable lifetime transfer (CLT)
IHT free after 7 years
IHT initially only if transfer is over the NRB and then at 20% if trustees pay and 25% if settlor pays
Trustees have discretion to change beneficiaries
The trustees have control over who gets income and who gets capital. The beneficiaries do not have a right to either.
Trust has a standard rate band of £1,000. Above this, trustees are charged at the rates applicable to an additional rate taxpayer.
The trust has a CGT exempt amount of 1/2 the normal amount (split between number of trusts settlor set up to a minimum of 1/5 each) CGT rate for trustees is 20%
IHT liability at outset, if gift is over the NRB. Back in estate if death within 7 years.

Trust fund potentially chargeable every 10 years (periodic charge) and when capital is distributed (exit charge (both no more than 6%)

Answer 103

A

Provides clear instructions as to how the estate is to be distributed
Can choose the people that will be responsible for administering the estate
Avoids the intestacy rules
Can make specific provision for the guardianship of children

Answer 104

A

 Administrators will need to be appointed

 They apply for letters of administration

 Debts will need to be paid

 The estate is then valued

 The IHT liability is calculated and must be paid within 6 months

 The IHT must be paid before the estate is distributed

Answer 105

A

 Administer deceased’s affairs/obtain most up to date copy of Will

 Obtain full details of all assets/liabilities/settle debts

 Complete IHT return/pay IHT

 Obtain/apply for probate

 Distribute estate in accordance with Will/inform beneficiaries of entitlements

 Complete Income Tax/CGT return

 Prepare estate accounts

Answer 106

A

 Ensure executors/trustees in place and able to act

 Considers change in family circumstances/divorce/can change
beneficiaries/grandchildren/ensure wishes are reflected

 Financial position may change

 IHT planning/changes in legislation

Answer 107

A

 To hold trust property and to administer it for the benefit of the beneficiaries

 Hold the title documents to any trust property

 Everything they do must be for the benefit of the beneficiaries

 Invest any cash wisely or pay it out to a beneficiary immediately

 Take account of the standard investment criteria

 Monitor investments

 Avoid conflicts of interest

 Use utmost diligence

 Keep proper accounts

Answer 108

A

 If death occurs with uncrystallised pension funds the fund value often paid to spouse

 This could then be included in that spouse’s estate when they die and could increase/create an IHT liability

 Death benefit should be paid into a spousal by-pass trust

 Spouse can be trustee as well as a potential beneficiary

 They could receive income/capital/loans from the trust at trustee’s discretion

 As they have no right to benefit the value of trust will not be included in their estate

 The maximum IHT saving would be fund value x 40%

Answer 109

A

ensure that they have an adequate income in retirement
review the suitability of their investments in advance of their retirement
consider a range of options in respect of Carol’s inheritance and to review their potential inheritance tax liability

Answer 110

A

 Income needed in retirement/capital needed

 Thoughts on how they wish to take their income/benefits in retirement/flexibility/guaranteed income/increasing/tax-free lump sums

 Plans to use other assets at retirement/downsizing

 Existing workplace schemes:
o Do they have recent valuations?
o Current transfer values/SRA/any penalties for early retirement
o Are there any guarantees - guaranteed annuity rate?
o Charges/fund details
o Death benefit nominations completed/up to date?

 Do they have any other deferred benefits?

 What is their investment experience?

 Growth rates to be assumed/inflation/projections/performance/charges

 Use of tax allowances/likely future tax status

 Affordability/budget for further contributions before retirement/willingness to
maximise contributions this tax year

 History of contributions/use of carry forward

 Current health status

 State Pension expected/BR19/State Pension age

 Other debts/liabilities

 Income generated from other savings

Answer 111

A

 Carol has her entire workplace pension held in one fund and one asset class

 Does not match ATR

 Does not offer any asset/fund management diversification

 Limited long-term growth

 Jim has his entire workplace pension fund invested in one UK and one Global equity fund

 Although this more closely aligns to his ATR and offers better potential for growth it does not offer the necessary asset or fund management diversification

 Need to manage volatility of funds if they are considering annuity purchase.

Answer 112

A

Benefits:

 Can choose how much to crystallise and when/can control amount of Income Tax
payable

 25% of the value will be tax free

 If just takes PCLS then MPAA not triggered

 Uncrystallised funds can continue to grow

 Any remaining uncrystallised funds will be available for beneficiaries

 Tax free if they die before 75 and paid out within 2 years of death

 Can be used to top up income before they receive State Pension

Drawbacks:

 Any funds not taken remain subject to investment risk

 Reviews may be needed in respect of any uncrystallised funds

Answer 113

A

 Guaranteed income for life/no investment risk

 Can include dependant benefits /annuity protection

 If death before age 75 ongoing income paid tax free

 Can include unlimited guarantee period

 Can include annuity protection

 Can include indexation

 Simple contract/no on-going
advice/reviews required

 Benefit from mortality drag

Answer 114

A

 Cannot benefit if annuity rates improve/locked into the annuity rates at time of crystallisation

 Death benefits have to be chosen at outset/cannot be passed through generations

 No prospect of investment growth (unless investment linked annuity is used)

 Risk of mortality cross subsidy

 Escalation can be expensive

 Annuity does not match ATR

Answer 115

A

 No income limit/flexibility of income/income can be varied

 Not locking into an annuity/poor annuity rates/can purchase later/rates may improve

 Tax‐efficient income

 Flexible death benefits; annuity/lump
sum/dependants and nominee’s
FAD/pass on through the generations

 Tax free death benefits if die before age 75/flexibility of beneficiary/can
nominate beneficiary

 Potential for investment growth

 Matches ATR

Answer 116

A

 Complexity/ongoing decisions/need for regular reviews

 UFPLS or income from FAD will trigger MPAA/£4,000 annual allowance

 Investment risk/fund could be depleted

 Income not guaranteed

 Annuity rates may fall

 Legislation may change

 Charges

Answer 117

A

 40% tax relief on contributions within higher-rate tax band

 Tax free growth

 Flexible benefits

Answer 118

A

 To ensure they know when and what they will receive

 Pay Class 3 NICs should there be any gaps in NI record

Answer 119

A

 Do not need PCLS/can take lump sums if required from other assets/more tax efficient

 Can control amount of Income Tax

 Matches ATR/flexible, tax efficient
income/flexible death benefits – tax free before age 75

Answer 120

A

 Pensions are IHT efficient/tax efficient fund

 Current funds are not diversified, not income producing, do not match ATR

Answer 121

A

 ISAs are Income Tax-free

 Dividend income from Bank shares tax-
free up to £2,000 (will reduce to £1,000
in April 2023 then £500 in April 2024)

 Interest from OEIC will use PSA

 Interspousal transfer ensures can use
both Jim and Carol’s allowances

Answer 122

A

 Locks in gains/no CGT payable/make use of CGT annual exempt amount at current rate of £12,300

 Again, interspousal transfers ensure both annual exempt amounts can be used

Answer 123

A

 Monitor performance/asset diversification/change in their needs and objectives and personal circumstances

Answer 124

A

 Income and expenditure required in retirement

 Any surplus income/willingness to use investments to top up pension

 Will increase pension income/PCLS/reduces reliance on other assets in retirement

 40% tax relief on contributions within higher-rate band/tax-free fund growth

 25% tax free PCLS/may not be a higher-rate taxpayer in retirement so income likely to
be taxed at basic-rate

 Salary/bonus sacrifice may be available/can reduce National Insurance
costs/employer may share NIC savings

 If sacrifice bonus Jim will save Income Tax on £6,000/as well as NICs

 Contributions will be immediately outside of the estate for IHT

 Can have immediate flexible access to pension funds

 No administration/deducted from salary

 Low charges/subsidised by employer

 Flexible death benefits

 State Pension entitlement (from aged 66 to 67 depending on DOB)/if they have other
deferred benefits

 Single premiums do not benefit from pound cost averaging/dependent on market at
time of investment

Answer 125

A

 Take current annual allowance/£40,000

 Determine pension input amounts for current tax year/employer and employee
contributions are included

 Deduct pension input amount (from annual allowance)

 This gives remaining allowance for current tax year

 Determine pension input amounts for previous three tax years

 Calculate any unused carry forward allowance

 Must use current year’s allowance first

 Total contribution cannot exceed earned income in current tax year (salary plus
bonus)

Answer 126

A

 Current expenditure/planned expenditure/capital needs

 Guaranteed income/flexible income

 Timescales/plan to retire in 6 months

 Assets available to provide income/objectives for inherited money/gifts/further
inheritances/priorities

 Safe withdrawal rate/sustainability

 State Pension benefits/age

 Tax status in retirement/use of tax allowances/ISA allowance/to provide tax-
efficiency

 Economic conditions/inflation/market conditions/current annuity rates

 Longevity/family health/how long will income be required?

 Required/expected rate of return on investments

 ATR/prospect of fund growth/inflation/cash flow analysis

 Health/longevity/income needs of surviving spouse

Answer 127

A

 Entitled to contribute £3,600 gross/£2,880 net each year

 Receives 20% tax relief

 Can benefit from pound cost averaging

 Tax-free pension commencement lump sum

 Potential for tax-free growth

 IHT-efficient/death benefits

 Flexible access to benefits

Answer 128

A

 Retirement options taken/level of income they are receiving and from which sources

 How inherited money was used

 Target income changes/new requirements for lump sums now in retirement

 Use of other allowances e.g., ISAs, CGT

 Change of personal circumstances including health

 Changes in external factors such as economy and political changes/State benefits

 Fund valuations and performance

 Asset allocation and rebalancing

 Changes to ATR/capacity for loss

Answer 129

A

 Jim and Carol will receive their State Pension between age 66 and 67

 Minimum of 10 years needed to receive any State Pension

 Full rate in 2022/23 = £185.15

 For a full new State Pension – 35 qualifying years are needed

 Qualifying years can be met through contributions or credits

 Starting amount calculated at 5/4/2016

 Triple lock/State Pension increased by higher of earnings, prices and 2.5%

 Taxed as earned income

 Option to defer/must be for at least 9 weeks/rate of increase 1% per 9 weeks which
equates to 5.8% per year

Answer 130

A

 Investment experience

 Level of emergency fund required

 Income or growth required/client objectives/timescale

 Interest being received on cash ISAs

 Type of money market fund/returns

 Use of tax allowances/Capital Gains tax/ISA/pension contributions/uncrystallised
losses

 Acquisition date and cost of OEIC/base cost of shares

 Level of dividends/interest received

 Performance

 Charges

 Are they willing to transfer ownership of their savings or investments

 Plans to make gifts/planned use of inheritance

Answer 131

A

 Excessive cash/emergency fund and does not match their ATR

 Their cash ISAs/Money Market funds are not likely to be earning high interest/savings
would be eroded by inflation

 They have ISAs for tax efficiency but have not used their allowance this year

 Overall, there is insufficient diversification/overweight in UK/no global equities in ISAs or OEIC/no commercial property or other asset classes

 Lack of income producing funds to top up income

 Jim’s OEIC fund does not match ATR

 Individual shares match ATR and could provide income from dividends/restricted to
one sector so high risk

Answer 132

A

Benefits:

 Liquid/could be used to supplement
income in short term

Drawbacks:

 Low returns/will not keep pace with inflation

 Does not match ATR

 Have sufficient emergency funds

Answer 133

A

BENEFITS:

 Suitable as part of a wider portfolio/as
offers diversification

DRAWBACKS:

 No index-linking for inflation proofed income

 No global diversification

 Amount held in fixed interest does not match ATR

 Limited growth potential and funds
have been very volatile recently given risk/reward

Answer 134

A

BENEFITS:

 Good potential for growth

 Good hedge against inflation

 Matches ATR

DRAWBACKS:

 Too much of portfolio held in UK smaller companies/needs to be diversified/no geographical diversification

 Not normally an income producing fund

 Reduced liquidity

Answer 135

A

 Amount held in these fund as a percentage of overall portfolio

 Returns

 Charges

 How long would it take to release funds/could be used for short term income needs

 Assets contained in the underlying portfolio

 ATR

 Experience of fund management team

Answer 136

A

 Protection against inflation

 Geographical diversification

Answer 137

A

 Diversification - bond funds normally hold a range of bonds of varying maturities/geographical diversification

 Liquidity - daily trading

 Can provide a regular income

 Can match ATR

Answer 138

A

 Can match ATR

 Provide income/aim to maintain
income and capital in line with inflation

 Asset allocation expertise/uses wider
range of assets/investment strategies

 Increases diversification/reduces
volatility within one fund

 Can access specialist
investments/institutional funds

Answer 139

A

 Professional active management/wider investment options/diversification

 Potential for higher returns

 Can target objective of increased income in retirement

 Bespoke service to match their ATR

 No requirement for ongoing involvement

 A DFM may ensure use of CGT annual exempt amounts and ISA allowances

 Should provide regular reviews/updates on performance

Answer 140

A

 Higher charges

 No guarantee of performance

 May invest in unacceptable sectors/lack of control

Answer 141

A

 They are both higher-rate taxpayers but likely to be basic-rate taxpayers in retirement so:

 Both can make additional pension contributions before retirement

 40% tax relief/tax efficient fund/IHT efficient

 Use their annual ISA allowance/tax free growth on ISA/bed and ISA OEIC and/or Bank
shares

 Interspousal transfer of OEIC and Bank shares
o Uses both their PSA, currently £500 (will increase to £1,000 in retirement if they become basic-rate taxpayers) on interest from OEIC
o Can use both their dividend allowance on dividends from shares/allowance currently £2,000 but reducing to £1,000 from 6 April 2023 then £500 from 6 April 2024/no gain on interspousal transfer
o Can each use their CGT exempt amount on gains from OEIC and shares

Answer 142

A

 Bank shares
o Pay dividends/Carol higher-rate taxpayer so tax rate 33.75% - likely to drop to
basic-rate in retirement (8.75%)
o She has a £2,000 dividend allowance/dropping to £1,000 from 6 April 2023 and
£500 from 6 April 2024

 OEIC
o As funds are held in fixed-interest securities income treated as interest
o Can use PSA of £500/this will increase to £1,000 if they are basic-rate taxpayers in
retirement

 Potential for CGT on both OEIC and Bank shares on disposal
o Taxed @ 20% if encashed in 2022/23 tax year as higher-rate taxpayers/may become basic-rate taxpayers after retirement (although CGT annual exempt amount reducing in 2023/24)
o Bank shares base cost will be date of Carol’s mother’s death o Use of CGT annual exempt amount
o Any losses can be offset against gains

Answer 143

A

 Ensure cash holdings are achieving highest possible interest rate/fixed term likely to offer higher interest rates

 Switch some cash ISA holding to stocks and shares ISA

 Cash ISA has limited income/returns will not match inflation

 Diversify portfolio

 Switch funds to match ATR/higher potential for income and growth/can take capital
withdrawals

 Fund switches can be made on platform/free of charge

 No tax implications for switches

 Interspousal transfer of OEIC/no gain on transfer/can use both Jim and Carol’s PSA
(£500)

 Use ISA allowance/Bed & ISA OEIC/ ISA funds to align to match ATR and income needs

 Maintain individual Bank shares/matches ATR/interspousal transfer to use both
dividend allowances and CGT annual exempt amounts on eventual disposal

Answer 144

A

 Provides dividend income/lower tax rates on dividend income

 Possible Interspousal transfer to split gains/income for tax efficiency

 No gain/no loss for CGT on interspousal transfer

 Can then use dividend allowance each currently £2,000 is set to reduce to £1,000 then £500 over next two tax years

 Matches their ATR

 Can use CGT exempt amounts

 Flexible withdrawals

 Can bed and ISA each tax year

 Potential for capital growth/dividend growth

 Provides degree of inflation proofing

Answer 145

A

 High risk/shortfall risk/capital loss

 Lack of geographical/sector diversification

 Dividend income taxable above £2,000 (currently)/not held in ISA

 May be liable to CGT on encashment

Answer 146

A

 How the £200,000 was used/gifts made

 Personal circumstances/changes/health/family/retired

 Income/outgoings/budget/inheritances/new money/tax status

 ATR/capacity for loss

 Current valuations/investment returns/growth/rebalance/performance

 Use of tax allowances

 New products/changes to legislation/taxation including impact of reduction of
dividend allowance and CGT annual exempt amount

 Economic position/market changes

 Charges/fees

Answer 147

A

 Pension death benefit nominations/make pension contributions/IHT free

 Use assets within estate before pensions/reduces value of taxable estate

 Use of gifting allowances/removed from their estates

 Consider EIS or SEIS/matches ATR

 Make charitable gifts/reduces effective IHT rate

 Make PETs and CLTs/reduces IHT over 7 years

 Review whole-of-life policy and maintain sum assured to help pay any residual IHT on
death/ensure policy is under trust

 Consider DGT/immediate discount/growth outside of estate

 Spousal bypass trust for pensions/avoids death benefit being added to member and
spouses’ estate should member die first/spouse can benefit if member dies first, and
children can still be beneficiaries

 Set up Deed of Variation for inheritance/pass directly to children’s estate/does not
pass into Jim and Carol’s estate/reduces potential for IHT of 40% on the inheritance

Answer 148

A

 Each has a Nil Rate Band (NRB) of £325,000
o Unused NRB can be transferred to surviving spouse

 Each has a Residence Nil Rate Band (RNRB) of £175,000
o Home must be inherited by direct descendants (children) or lineal descendants e.g., grandchildren
o Unused RNRB can be transferred to surviving spouse

 Total NRB plus RNRB on 2nd death is £1m

 Their total estate is currently worth £1,325,000

 Current IHT liability = £325,000 x 40% = £130,000

 Estate will increase by a further £200,000 when they receive the inheritance/additional £80,000 IHT liability

Answer 149

A

 £3,000 annual allowance (and previous years if not used) - reduces estate immediately

 £250 small gifts allowance- reduces estate immediately

 Make gifts out of surplus income- reduces estate immediately
o expenditure must be from income and not capital
o must be regular and must not affect their normal standard of living
o if cannot be covered by an exemption these will be PETs

Answer 150

A

 Carol and Jim should make single premium pension contributions/ensure contribution is sufficient to top up pension income to required level for retirement in 6 months/use carry forward if required:

 supplements retirement income

 tax relief on contributions/tax free growth

 pension contributions would be immediately free from IHT

 if drawdown/UFPLS used can be passed on through generations

 Use ISA allowance for current year/tax free income/growth

 Consider gifts: £3,000 annual allowance and £250 small gifts allowance/immediately
outside of the estate for IHT

 Set up Deed of Variation for any excess:

 money will pass directly into children’s estate/bypassing Jim and Carol’s estate so no
IHT payable

Answer 151

A

 Must be in writing/legal document

 Signed/dated/witnessed

 Deed states what is being varied in Will/intestacy

 Must be clear who is benefiting from the variation

 All affected beneficiaries must agree and be over 18 and be of sound mind

 It will be treated as taking place on the donor’s death

 Must be done within 2 years of death

 Deed should not be for consideration/money or money’s worth

 Deed should contain a statement that the variation is to have effect for IHT

Answer 152

A

 Accept increased premium/to maintain current sum assured

 Retain existing premium - resulting in reduced sum assured

 Reduce premium/sum assured will reduce – maintains affordability of policy

 Can cancel policy at no cost:

 loss of premiums/unlikely to have a surrender value

 Consider rebroke /Jim and Carol have stopped smoking so may be able to achieve
better premium

Answer 153

A

 Can be investment in a single company

 Tax relief at 30% on investment of up to £1m per tax year (£2m if extra £1m is in
knowledge intensive company)

 Tax relief given as a tax reducer

 Tax relief reclaimed if shares sold within 3 years

 Can use deferral relief for CGT on potential gains of OEIC or Bank shares if reinvested
in EIS shares

 No liability to CGT on the EIS after 3 years

 Any dividends are taxable

 IHT relief after 2 years

 Matches ATR as part of a diversified portfolio

Answer 154

A

ensure her protection arrangements are adequate for her needs
consider investment options following the divorce settlement
execute the pension sharing order

Answer 155

A

 Expected costs of university/living and tuition fees

 Level of income needed in the event of death or serious illness

 Any lump sum needed in the event of death or serious illness

 Term of cover/duration of university fees/period of dependency

 State of health/family health/smoker/hazardous hobbies/lifestyle

 Affordability/budget

 Current expenditure/cash flow analysis

 Will in place/willingness to write a new Will

 Any assistance from family members/use of savings

 Any debts/liabilities

 Confirm Sasha is nominated as beneficiary on pension

Answer 156

A

 She is now the sole earner/rely on her salary/single parent

 No life cover/no death in service (DIS)

 No critical illness cover

 No Income Protection cover

 Loss of Private Medical Insurance/Sasha’s PMI cover dependent on her father’s employment

 Her capital will be eroded in event of her illness

 No regular maintenance payments from Faizal/ex-husband

 Limited pension fund

 Any Will made during her marriage will now be out of date

 Nomination on her pension may be out of date/or needed

 Inflation risk on cash holdings/poor return/excess cash

Answer 157

A

 No further underwriting/continuing cover

 Will cover pre-existing conditions/comprehensive cover/any exclusions?/any restrictions

 Limited time period to apply for continuing cover

 Cost of cover/is it affordable?

 Can she find cheaper cover?/can she reduce cover?

 Has she ever made a claim?/policy excess?

 Is she in good health/does she need comprehensive cover?

 Premiums will increase each year/may become unaffordable

 Is she willing to self-insure/self-fund?/priority

 Would her current employer consider offering any cover?

Answer 158

A

Income Protection

To replace income in the event of illness/incapacity
4 week deferred period to pay out as soon as possible as doesn’t appear to have sick pay from employer.
Own occupation to give the widest definition
Benefit will be 50-60% of earnings
Term would be to selected retirement age
Guaranteed premiums for peace of mind that they will not go up
Indexation in order to keep pace with inflation

Answer 159

A

Level term/decreasing term life or earlier critical illness policy

Pays out a tax-free lump sum in the event of death or earlier diagnosis of a serious illness/total permanent disability included
Single life policy in trust for Sasha as it will be outside of the estate/speedy payment. Use split trust (for CIC)
Term to end of University/Sasha financially independent/or Jenny’s normal retirement date
Sum assured to cover University fees/living costs
Indexation to keep pace with inflation
Waiver of premium in order to maintain the policy in the event of long-term illness or disability
Guaranteed premiums just for the certainty of cost throughout the term

Answer 160

A

 Administrators required/personal representatives

 Letters of administration

 Any debts will need to be paid/assess value of debts

 The estate is valued

 The IHT liability is calculated

 Any IHT must be paid within six months

 This must be paid before estate can be distributed

 Sasha’s assets held in trust until age 18

 It will cause delays

 Funeral arrangements will not be known

Answer 161

A

 A Will is not revoked by divorce

 But any Will may be out of date/may need updating

 Treated as if Faizal has died/cannot benefit (unless the Will was made in anticipation
of divorce)

 He cannot be an executor of the Will/may need to be changed

 Rest of Will remains valid

 Need a trust for Sasha as currently a minor

 Appoint trustees of choice

 Update any nomination on her pension

Answer 162

A

 Does she want to retain access or will she consider use of trusts

 Timescale

 Current net income

 Consideration of how much emergency fund is needed

 Return on existing savings and investments/performance of pension funds

 Consideration of the use of a discretionary fund manager

 Willing to look at asset allocation/diversification to better match her ATR

 Does she need income/does she have any income requirements?

 Details of pension contributions/willing to use carry forward

 Would employer support a higher contribution/salary sacrifice available?

 Is she claiming child benefit?

 Has she done a formal risk profile assessment?

 Willingness to continue investing in ISAs

Answer 163

A

 Range of asset classes not used/lack of diversification/underweight in equities

 Does not match Jenny’s attitude to risk

 Is ISA allowance being fully used

 Adequate/excessive emergency fund

 Current account likely to be paying no/low interest

 Too much held on deposit/above FSCS limit although 6-month temporary high
balance applies

Answer 164

A

 What are the expected living expenses/allowance whilst at university?

 What tuition fees can be assumed

 Assumed inflation rate

 Affordability/budget

 Is she expecting Sasha to get paid work/contribute to cost?

 Any other help/grandparents?

 Will she want to fund the costs from income or capital?

 Is she prepared to put in place protection arrangements to cover university costs
should she fall ill/die?

 Priority of the aim

 Use of protection products

Answer 165

A

How much is the loan?/What is the interest rate?
Sasha may never have to repay/earnings may never reach threshold
Debt will be cancelled after 30 years
Student Loan does not affect Sasha’s credit rating
Loss of capital/may impact her own retirement objectives/affordability/tax considerations
Loss of potential investment growth
Political risk/loans may be cancelled in future.

Answer 166

A

Advantages

 No CGT liability on encashment

Disadvantages

 Loss of potential growth in value of investment

 Cash can only be replaced by using future year’s allowances/unless flexible ISA

Answer 167

A

 Lack of diversification

 Jenny may need income/growth over the longer term

 Low interest rate/poor rates of return from cash

 Not tax‐efficient/interest is taxable although may be covered by her PSA

 Not in line with attitude to risk/too low risk

 Default risk as exceeds Financial Services Compensation Scheme (FSCS) limit of
£85,000.

 Temporary additional FSCS protection up to £1m for 6 months/proceeds of divorce

 Lack of potential for growth/better growth potential available elsewhere

 Inflation risk

 Interest rate risk

Answer 168

A

 Increases fund/increases chance of retiring when she wants to

 Increased pension commencement lump sum

 Tax-free growth/tax relief

 Employer matching/lower charges/less admin

 Carry forward available

 Nomination for Sasha

 IHT-free/reduces IHT liability/income tax-efficient on death before 75.

Answer 169

A

 May have limited affordability

 Loss of liquidity/loss of access to capital until normal minimum pension age

 No pound cost averaging/investment risk/moderate capacity for loss (CFL)

 Only 25% Pension Commencement lump sum (PCLS) and income is fully taxable

 Contributions limited by annual allowance/earnings limit.

Answer 170

A

 Global diversification/can invest in any area

 Currently most of portfolio in cash/limited equities and only in the UK

 Reduces concentration risk/larger selection of companies

 Greater growth prospects/developing markets/tech stocks

 Different economic cycles globally/reduced correlation

 Needs growth/she has time for some volatility

 Can match her attitude to risk (ATR)

 Professional/active/passive management/no Alpha for tracker fund

 Global equity may pay higher dividends/benefit from currency movements

Answer 171

A

o Increased regular pension contributions for tax relief/tax free growth

o Pound-cost-averaging to reduce volatility/increase returns

o Ensure maximum employer matching for contributions

o Use salary sacrifice to increase pension contributions/reduce NICs

o State Pension/BR19

Answer 172

A

o Increase exposure to equities through collectives

o Diversification/choice of funds to match her ATR

o Equities tend to outperform other assets over medium to longer-term

o Greater potential for capital growth

o Pound-cost-averaging on regular savings benefits from volatility/reduces market
timing risk

o Jenny can use her currently unused dividend allowance

o No CGT on internal fund changes/can use CGT exempt amount o She retains control and access

o Flexibility with contributions/can start and stop

o Suitable for medium/long term investment

o Reduce cash balances

o Switch cash ISA to stocks and shares ISA

o Inflation risk on cash/poor returns from cash

o Continue investment in ISAs for tax-free growth/income

o Reduce monthly expenditure if possible

Answer 173

A

Where each constituent of the index being tracked is held in accordance with its index weighting.

Advantage: Accurate.

Disadvantage: Expensive.

Answer 174

A

A representative sample of securities from each sector of the index is held.

Advantage: Less expensive.

Disadvantage: Potentially encourages biases towards those stocks with the best perceived prospects.

Answer 175

A

Computer modelling to find a representative sample of securities that mimic the broad characteristics of the index being tracked.

Advantage: Costs less than replicating the index.

Disadvantage: More complex.

Answer 176

A

 Low cost/cost effective

 Run by computer system/no human judgement

 Potential for growth

 Perform in line with index

 Exposure to different asset classes

 Can access geographical diversification/global

 Can track any index/wide range of indices to track

 Liquid

 Easy to follow performance/understand

 Active managers don’t always outperform

Answer 177

A

 Will underperform the market due to charges

 Tracking error/will never match market exactly

 Perform poorly in falling market

 No active management/no alpha

 Lack of control over underlying assets

Answer 178

A

 She has excess cash/emergency fund

 No interest/income paid on Premium Bonds

 No potential for capital growth

 Unknown returns/may not win a prize

 Inflation risk/returns unlikely to match inflation

 Suitable for short-term holding/not suitable for long-term

 May not match attitude to risk

Answer 179

A

 Inflation risk on cash/poor returns/multi-asset funds protect against inflation/should out-perform cash

 Wide range of assets available/diversification

 Non-correlation of assets

 Reduces volatility/risk

 Can be active/passive/professionally managed

 Risk rated to meet ATR/cash does not match ATR

 Fund switching/easy to change funds/liquidity

 Could provide additional income/dividends

Answer 180

A

 Internal gains not taxed

 If equity based, she could use her dividend allowance

 Dividends will be taxed at 8.75% up to the basic-rate threshold

 Interest from fixed interest investment taxed at 20% up to the basic-rate threshold

 CGT exempt amount of £12,300

 Gains subject to CGT at 10% (if stays a basic-rate taxpayer)

 Any assignment/transfer/fund switch is a CGT disposal

 Tax return required/cost/admin

Answer 181

A

 Transferring lump sum into a discretionary trust for the benefit of Sasha

 Jenny would be trustee so retains control during her lifetime

 Sasha would have no right to benefit, it would be at the discretion of the trustees

 The gift into trust would be a chargeable lifetime transfer

 If gift is below the nil rate band there is no IHT charge at outset

 Jenny as settlor would need to survive for 7 years for the gift to fall out of her estate

 The trustees could invest in non-income producing assets e.g., investment bonds

 Segments/the policy could be assigned to Sasha when she needs money

 The money could be used for Sasha’s university fees and living expenses

Answer 182

A

 Pension sharing divides the scheme member’s pension rights at the time of divorce

 As Faizal’s scheme is a defined contribution scheme, the amount will be expressed as
a percentage of his fund

 Jenny’s share is 50% of the value of the pension scheme currently worth £180,000

 Jenny could transfer this to her own workplace pension scheme or to a personal pension

 The original scheme can, but does not have to, offer Jenny membership

 Jenny will need to make an active choice about where she wishes her pension credit to go

 When pension benefits are shared, they are passed irrevocably to Jenny

 Pension sharing is therefore a clean break for both

 The pension provider will usually charge a fee for pension sharing

 Sharing orders must normally be implemented within four months of the scheme
receiving the necessary information

Answer 183

A

 Potentially loses less value than if offset or earmarking had been used

 Immediate settlement and a clean break

 No Income Tax implications for Faizal

 Pension debit will not count towards
his lifetime allowance

Answer 184

A

 Pension credit does not affect her annual allowance

 Pension not lost on her remarriage or cohabitation

 Pension credit not lost on Faizal’s death

 Immediate settlement

 A clean break

 She has control of investment

 She can decide retirement date

 She can decide on strategy/FAD or
annuity

Answer 185

A

 If there is an option for funds to remain in Faizal’s scheme/fund choices/charges/any guarantees

 Details of Jenny’s workplace scheme/fund choices/charges/ease of having pension benefits in one place

 Use of an individual SIPP/wider investment choice/charges may be higher

Answer 186

A

 Wider investment choice/can hold cash/diversification

 A choice of benefit options e.g., flexi‐access drawdown, phased

 Online access/ease of admin/can monitor performance

 Easier to match attitude to risk

 Potential for higher returns

Answer 187

A

 Recent divorce/single parent

 Moderate capacity for loss

 Possible affordability issues

 No maintenance payments from Faizal

 Limited pension savings

 No protection in place

Answer 188

A

 Family member/trusted friend present at meetings

 Clarity of explanation/no jargon/check her understanding

 Set out explanations in writing

 Give time to consider decisions/ensure no ‘undue influence’ exerted over her

 Flexible outcomes required/her position has changed

 Record ‘difficult’ information

 Strict confidentiality for information revealed

 Fact finding/compliance/recommendations/reviews

Answer 189

A

 Change in risk profile/capacity for loss

 Change in tax position/employment

 Change in health

 Marriage/cohabitation

 End of tax year - use of ISA allowance

 When Sasha starts university

 Review progress against objectives

 Legislative changes / economic changes

 Review of fund performance of ISA and pension

Answer 190

A

 She has adequate emergency fund so able to tolerate loss/volatility

 Just returned to full time work

 Cautious to medium risk profile

 Level of income/capital/expenditure

 She has no mortgage

 Due to receive share of pension

 She has one financial dependant

 Any inheritances expected

 Does she have investment experience/knowledge

Answer 191

A

 She must be of sound mind

 She must be aged 18

 It must be in writing

 It must be signed by Jenny as testator

 It must be signed by a minimum of two witnesses who are not executors or
beneficiaries

 There must be a clear intention to dispose of property

Answer 192

A

 Make gifts/potentially exempt transfers to Sasha

 Transfer lump sum into trust for Sasha / outside her estate after 7 years

 Use annual allowances/£3,000/£250/gifts out of normal expenditure/maintenance

 Consider use of DGT to create income for her/Sasha and reduce IHT

 Make pension contributions

 Make charitable donations

 Take out a whole of life policy in trust for Sasha if there is still an IHT liability after all
planning has been done

Answer 193

A

 Desired level of income/need for capital

 Current expenditure/affordability

 Cashflow modelling

 BR19/State pension forecast

 Growth assumptions based on ATR/stress test/projection from existing provider

 Inflation assumptions

 Current contributions/any lump sums

 Costs/charges

 Current/future tax status

 Other sources of income/use of other assets

 Calculate fund value/contributions needed to provide income

 Based on annuity rates/safe withdrawal rate (SWR)/longevity

 Compare projections with capital value required/establish shortfall.

Answer 194

A

 Diversification reduces risk by reducing concentration/ increasing the number of asset classes

 Some asset classes are not strongly correlated - a loss with one asset class might not mean a loss in another

 Geographical diversification spreads the risk across a number of different economies / currencies / national markets

 Sector diversification reduces the risk associated with specific areas of the economy or particular firms

Answer 195

A

 Loans start to be repaid the April after the course is finished

 Repayments will only be made if income is over the repayment threshold currently £27,295 a year

 If income falls below the threshold repayments will stop and will only restart once
income is over the threshold again

 Additional voluntary repayments can be made at any time

 Repayments are 9% of income over the repayment threshold

 Repayments are made through the UK tax system if employed and through self-
assessment if self-employed

 Current interest rate is 6.3% (capped)

Answer 196

A

 The university sets the tuition fee

 The loan is paid directly to the
university

 The student has to pay it back

 Full-time students can get up to
£9,250

Answer 197

A

 Details of household income must be given along with the course start date

 The loan is paid directly into the student’s bank account at the start of each term

 It has to be paid back

 In the 2022/23 academic year the loan
is up to £9,706 if living away from parents and outside London

Answer 198

A

 Current income needs/income needs in retirement

 Planned capital expenditure/new capital/gifts/proposed use of inheritance

 Current assets/current income/level of guaranteed income

 Growth rate assumptions/interest rate assumptions/charges

 Inflation assumptions

 Attitude to risk/capacity for loss

 Longevity/health

 Market corrections/estimates of market falls/stress test

 Impact of death of either

Answer 199

A

Benefits:

 Potential growth/stay invested

 Flexible income

 Tax efficient income

 IHT free/outside of estate

 Annuity rates may improve/no mortality drag

 Choice of successor/flexible death benefits

 Matches ATR

Drawbacks:

 Increased fees/charges

 Investment risk/loss of mortality gain

 May fritter funds/deplete funds before death

 Need advice/complex/reviews

 Income not guaranteed

 Triggers MPAA

Answer 200

A

 When did the policy start?

 What is the sum assured – is it sufficient?

 Is the policy in trust for children?

 Details of funds

 What is your attitude to risk with regard to this policy?

 Are Jim and Carol aware that at the review the premiums/sum assured may have to
change?/Is there an option to increase cover?

 On what basis was the policy set up – minimum/maximum/type of
cover/increasing/waiver of premium?

 What is the current value of the policy?

 Do you have a current surrender value?

 Does it have critical illness cover?

 Health/due to recent change in smoker status consider re-broking

Answer 201

A

Benefits

 Cannot be cancelled by insurer/can claim more than once

 Can claim for a longer period/to retirement

 Own occupation definition available

 Indexation of benefits

 Can include proportionate/rehabilitation benefit

 Guaranteed Premiums

Drawbacks

 Usually more expensive

 Longer deferment period before receipt of claim

 Does not cover unemployment

 No lump sum benefits/no cover upon death

 Stricter underwriting

Answer 202

A

 She has excess cash holdings

 Fixed interest and some equity exposure matches her attitude to risk

 Cash exposed to inflation risk

 Interest rate risk

 No real growth potential on cash/potential for growth on equities

 Transfer maintains ISA wrapper/transfer does not use current year ISA

 Wide fund choice/hold on platform/active/passive

 Suitable for long-term investment

 ISA wrapper is wasted on cash as she has a PSA

 Increases diversification within her portfolio

 Equities generally outperform other assets

Answer 203

A

 Income/capital needed on long term illness/serious illness/death

 Timeframe/objectives/priorities

 Affordability/planned capital expenditure

 Liabilities/debts/credit cards

 No sick pay from employer

 No personal protection in place

 Support from family/any inheritances expected

 Willing to use current assets/savings/investments/emergency fund

 Underwriting issues/family health history/hazardous pursuits/smoker status

 Attitude to risk/her capacity for loss since the divorce

 Use of trusts/nominations/Will in place

Answer 204

A

Initial Thoughts:

 Consider current health

 Consider plans and income required in retirement

 They will not receive State Pension until age 66 to 67 (depending on DOB) – how will they fund interim years?

Answer 205

A

Initial Thoughts:

 Consider increasing pension contributions to maximise 40% tax relief

 Pension funds likely to be insufficient to meet pension income needs

 Consider suitability of funds to match ATR and timeframe to retirement

 Do they have other deferred pension plans?

 Consider level of State Pension benefits they will receive

Answer 206

A

Initial Thoughts:

 Review whole-of-life policy, does it meet current IHT liability?

 Consider deed of variation on inheritance to pass directly to children

 Consider use of inheritance to top up pension income

Answer 207

A

Initial Thoughts:

 Consider tax efficiency of investments/higher-rate taxpayers, likely to become basic-rate taxpayers in retirement

 Consider suitability of investment funds

 Recommend alternative solutions

 Both have a PSA of £500

 Both have a dividend allowance of £2,000 – Jim does not have relevant assets to use his

Answer 208

A

Initial Thoughts:

 Consider ways to ensure that as much of estate passes to the children on second death

Answer 209

A

Initial Thoughts:

 No mention of Wills/impact of divorce on any Will

 Does she receive Child Benefit for Sasha?

 No mention of health status

Answer 210

A

Initial Thoughts:

 Jenny’s estate is over the IHT nil rate band

 What is the interest rate being received on savings

 Consider the options for the lump sum

 Consider the options for pension sharing order

Answer 211

A

Initial Thoughts:

 Jenny is a basic-rate taxpayer

 No sick pay/life cover/CIC or PMI

 Total review of protection needs required

 Does pension fund match her ATR?

 Pension funding options/salary
sacrifice?

Answer 212

A

Initial Thoughts:

 Merits of funding tuition fees and living expenses herself instead of Sasha using student loans

Answer 213

A

Initial Thoughts:

 Cash flow analysis?

 Interest rate on cash ISA?

 Does she want to keep premium bonds/what has the return been?

 Return on stocks and shares ISA

 No use of dividend allowance

 PSA can be used against interest

 Lack of diversification within portfolio

 Too much in cash/only UK equity exposure

Answer 214

A

Using this type of trust allows an individual to access their original capital at any point and in any amount but the growth will not be included to their estate for Inheritance Tax purposes.

The outstanding loan remains in the settlor’s or donor’s estate for Inheritance Tax purposes. The loan can be waived in part or in full at any time.

Answer 215

A

A Discounted Gift Trust is a trust based inheritance tax planning arrangement for those individuals who wish to undertake inheritance tax planning but who are unable to lose full access to their investment.

The term “discounted” is used because the value transferred on establishing the trust is less than the amount invested.

There are two basic types of Discounted Gift Trust, but many variations on the general theme.

Nil or negligible discount is available where the settlor is, or is “rated” over 90. The value transferred in such cases is the policy premium.

A Discounted Gift Trust (DGT) is a trust-based inheritance tax (IHT) planning arrangement for those individuals who wish to undertake IHT planning but who are unable to lose full access to their investment. In a DGT, access is typically provided by means of a series of preset capital payments to the investor who will be the settlor of the trust.

The term ‘discounted’ is used because the value transferred on establishing the trust is less than the amount invested. This is the logical consequence of the fact that the settlor is entitled to a stream of capital payments. The settlor is typically entitled to payments on specified dates subject only to be alive on those dates. The settlor’s transfer or gift is the bond/policy premium less the value of the payments receivable during his/her lifetime.

Answer 216

A

allow an IHT-effective transfer
allow settlor access through preselected payment stream
may attract a discount
tried and tested – ‘work as described’

Answer 217

A

relatively inflexible
payment stream can’t be changed
payments generally capped so as not to exceed the 5% rule

Answer 218

A

A loan trust involves an individual establishing a trust. But rather than making a gift, the settlor lends money to the trust. The trustees then invest this money, typically into an investment bond, for the benefit of the trust beneficiaries.

The settlor can demand repayment of the outstanding loan at any time - this can either be in full or in part. If regular loan repayments are needed, the trustees can repay the loan by using the 5% tax deferred withdrawal facility from the bond. The settlor cannot benefit from the trust fund - any fund growth must be used for the benefit of the trust beneficiaries.

Key points:

The amount of the outstanding loan remains within the settlor’s estate for IHT
Any growth, over and above the outstanding loan, is immediately outside the settlor’s estate
The loan is interest free and repayable on demand
The 5% tax deferred allowance on bonds can be used to make loan repayments without an immediate tax charge
If access to the loan is no longer required it can be waived or gifted
Waiving or gifting the right to the loan in the settlor’s Will can avoid the need to call in the loan and a possible chargeable gain

Answer 219

A

A money market fund is a kind of mutual fund that invests in highly liquid, near-term instruments. These instruments include cash, cash equivalent securities, and high-credit-rating, debt-based securities with a short-term maturity (such as U.S. Treasuries). Money market funds are intended to offer investors high liquidity with a very low level of risk. Money market funds are also called money market mutual funds.

A money market fund is a type of mutual fund that invests in high-quality, short-term debt instruments, cash, and cash equivalents.
Though not quite as safe as cash, money market funds are considered extremely low-risk on the investment spectrum.
A money market fund generates income (taxable or tax-free, depending on its portfolio), but little capital appreciation.
Money market funds should be used as a place to park money temporarily before investing elsewhere or making an anticipated cash outlay; they are not suitable as long-term investments.

Answer 220

A

Wholesale markets where banks, building societies and governments lend and borrow money from each other. They are considered short-term (less than 1 year) debt instruments that are traded in high volumes and provide low risk.

Answer 221

A

Treasury Bills - Debt Management Office (DMO)

Commercial Bills - Companies

Certificate of Deposits - Banks

Answer 222

A

Treasury Bills
No interest payments but issued at a discount to their maturity value

Commercial Bills
No interest payments but issued at a discount to their maturity value

Certificate of Deposit
The deposit carries a fixed rate and term

Answer 223

A

Minimum investments in money market instruments are high which makes it difficult for an individual to gain access to the market. However, a fund is a collective investment vehicle that pools together investors’ funds to invest in the money market.

Answer 224

A

Standard Fund – 6 to 12 months

Short-term Fund – 2 to 4 months

Answer 225

A

Pay a fixed rate of interest, known as the coupon. This is set at issue and is a percentage interest on the nominal value.

A fixed redemption value, known as the par/nominal value.

A fixed redemption date, known as the maturity date. This is set at issue.

Answer 226

A

Non-systematic risk is a specific risk that occurs as a result of the issuer, it can be eliminated by diversification

Systematic risk is a market risk (interest and inflation rates) that is unavoidable, it cannot be eliminated by diversification

Answer 227

A

Inflation - Erodes the purchasing power of interest

Interest rates - Generally bond prices move in the opposite direction

Credit risk - Issuer may not be able to pay interest or capital at maturity

Currency - Movements in exchange rates affect the value of holding

Liquidity - May be difficult to sell at an acceptable price

Answer 228

A

Negative correlation

Answer 229

A

It reduces non-systematic/specific risk.

Answer 230

A

Cash and Property. If interest rates are high the returns on cash deposits become attractive, but property investors will be hit by the increased cost of borrow.

Answer 231

A

Through diversification.

Answer 232

A

VCT: 30% on first £200,000

EIS: 30% up to £1,000,000 (£2,000,000 for knowledge intensive companies)

SEIS: 50% on first £100,000

Answer 233

A

A hard fact is a verifiable fact (e.g., name, age salary, marital status)

A soft fact is opinion based (e.g., ethical views, family values)

Answer 234

A

Formulating the investment strategy for asset allocation. This sets out the proportion of capital to invest in each asset class to generate a portfolio that needs the needs of the client.

Answer 235

A

Funds objectives

Costs and charges

Management group

Performance of fund manager

Type/ structure (unit trust/ OEIC etc.)

Answer 236

A

It looks at the difference between the return you would have expected from a security, given its beta, and the return it actually achieved.

Answer 237

A

Where an employee agrees to a reduction in their salary in exchange for a bigger employer contribution.

There must be a written agreement in place, this must be done before salary is actually reduced and the reduction cannot take them below the national minimum wage.

Answer 238

A

Offsetting
Earmarking
Sharing

Answer 239

A

Pension sharing divides the member’s pension rights at the time of divorce, and it must be transferred into the ex-spouse’s name

This provides a clean separation as each spouse has their own pension from this point forward

Answer 240

A

Both the old and new basis are increased each year by the triple lock

This is the greater of CPI, National Earnings Average or 2.5%

The earnings-related elements of the old regime together with any protected amount of the single tier pension is only
increased by CPI

Answer 241

A

Yes, under both the old and new regime, individuals can defer their State pension; however, the rules vary depending on
which version of the State pension is being received

Deferral can occur at any point, i.e., before the pension becomes payable if it is not needed or it can be deferred once
in payment; however, it can only ever be deferred once

Answer 242

A

By making the choice to defer your State pension, you will receive an increased pension once it is drawn

For pre April 2016 – pensions will be increased at a rate of 1% for every 5 weeks of deferment

For post April 2016– pensions are increased at a rate of 1% for every 9 weeks of deferment

Another key difference is that a deferred pre April 2016 State pension can be taken as a taxable lump-sum (this is no longer possible)

Answer 243

A

 Sudden or permanent loss of assets
 The need to increase the income taken from a portfolio
 The need for large withdrawals
 Future inflation is higher than expected
 The pension holder living longer than expected
 Investment returns are lower than expected

Answer 244

A

Provides cover towards costs of long-term care in old age

Answer 245

A

If an individual makes a lifetime gift to another individual or to an absolute/bare trust or a disabled person’s trust, this is a PET

Free from IHT if the donor survives 7 years from making the gift, otherwise there is a charge of 40% if its value exceeds the available NRB – the recipient pays tax liability

Answer 246

A

If an individual makes a lifetime gift to a discretionary or interest in possession trust, this is a CLT

Tax is charged at the lifetime rate of 20% when gift is made if it exceeds the available NRB. On death of the donor within 7 years, further tax might be due

Answer 247

A

Income Support

Jobseeker’s Allowance (JSA)

Statutory Sick Pay (SSP)

Employment and Support Allowance (ESA)

Answer 248

A

Child Benefit

Payable if responsible for a child under 16 or under 20 in approved education/training.

Answer 249

A

It is non-contributory, is not means-tested and is tax free

A new claim can be back-dated 3 months

Entitlement to Child Benefit is not affected by any other benefits received by the claimant

Answer 250

A

If a claimant or their partner has an adjusted net income in excess of £50,000, there is a tax charge of 1% of the amount of Child Benefit for every £100 in excess of £50,000.

Therefore, if adjusted net income exceeds £60,000 the charge wipes out the benefits.

Answer 251

A

Whole of life policies pay out a lump sum on death whenever that occurs, whereas term assurance pays out a lump sum on death only if death occurs during the term of the policy

Answer 252

A

Unit linked policies combine life cover and investment

Maximum cover plan – premium guaranteed for initial term then reviewed upwards in line with age

Standard cover – premium set so that it does not need to increase

Guaranteed cover (non-profit) – no investment element, guaranteed level of cover for guaranteed premium, may have surrender value

Answer 253

A

Increasing term assurance - the sum assured increases during the policy term by either a fixed amount or in-line with inflation

Decreasing term assurance – sum assured falls each year in pre-determined way to £0

Answer 254

A

Mortgage protection assurance – s/a decreases each year in-line with outstanding mortgage value

Family income benefit (FIB) – s/a is expressed as amount payable each year to the family, from death until policy ends

Gift inter vivos– s/a decreased in-line with IHT payable on a potentially exempt transfer (PET)

Answer 255

A

A type of term assurance policy written to age 100, can be used as alternative to a WoL policy

Often a cheaper alternative, however, must consider the possibility of surviving past 100

Answer 256

A

A term assurance policy can be converted to a WoL policy at any point during the term without the need for further medical evidence

Answer 257

A

A type of term assurance bought by employers to pay out death in service benefits to employees’ dependents

RLPs don’t form part of employee’s annual or lifetime pension allowance

Answer 258

A

Where life cover is provided for both parties, but is used where a lump sum is only needed on death of the second person (e.g., for an IHT liability that may arise on the second death)

When first spouse/CP dies the policy simply continues

Write under trust to avoid IHT

Answer 259

A

Do not have to wait for probate

Proceeds may not be subject to IHT (in addition, premiums likely to fall into an IHT exemption)

Benefits of the policy are distributed as per wishes of settlor without need of a will

Better protection against creditors if settlor becomes bankrupt

Answer 260

A

The beneficiary has an absolute right to the income and capital held in trust and the trustees have no discretion in the handling of trust assets

Beneficiaries are stated upfront and cannot be changed

Gifts into absolute trusts are PETs

Answer 261

A

The settlor specifies a list of beneficiaries/ potential beneficiaries and nominates one or more of them to have an interest in possession

If no other action is taken, these beneficiaries will receive the trust proceeds

Gifts into interest in possession trusts are CLTs

Answer 262

A

Where trustees have the power of appointment to choose beneficiaries from a class/es of potential beneficiaries

Gifts into discretionary trusts are CLTs

Answer 263

A

If a life policy contains CIC, a split trust could be used

This enables the settlor to benefit from CIC payment, but any life payment will be administered to beneficiaries via the trust

Answer 264

A

Personal details including age

Current state of health

Medical history

Occupation and any hazardous pursuits

Lifestyle

Answer 265

A

Short term policies may apply moratorium basis instead of full medical underwriting

This excludes pre-existing medical conditions during past 5 years for 2 years

Answer 266

A

An additional benefit added to term or WoL policies

Pays out when life assured diagnosed with terminal illness and has a life expectancy of less than 12 months

Not available as a separate policy and is not paid in addition to sum assured

Answer 267

A

The transfer of ownership from one person to another

Assignments can be temporary or permanent

Types include: absolute (sale or gift), mortgage, bankruptcy and to trustees

Answer 268

A

Under a joint tenancy, if one of the joint tenants dies, their interest passes automatically to the surviving tenant

Under a tenancy in common arrangement, the death of a tenant results in their share passing to their estate and can therefore be distributed as per their will

Answer 269

A

If the deceased bequests at least 10% of their net estate to a registered charity

Net estate = taxable estate after deducting NRB but before taking charity donation into account

Answer 270

A

Transfers between legal spouses/civil partners

Gifts to charities

Gifts in consideration of marriage

Annual exemption of £3,000

Small gift exemption of £250

Gifts out of normal expenditure

Answer 271

A

Tax may be immediately payable on a CLT if the total of CLTs in a 7-year period exceeds the current NRB. Donor or recipient can pay the tax:

Recipient pays – charge 20% on excess of NRB

Donor pays – charge 25% on excess over NRB

Answer 272

A

When a person inherits property through a will or intestacy, they can vary the terms of the will or the intestacy by executing a deed of variation –allows beneficiaries to change the distribution of the estate

Must be signed by all parties adversely affected

Answer 273

A

Permanent health insurance (PHI) – because IP is a permanent policy and does not need renewing each year. The insurer cannot cancel the policy or increase premiums, even if more than one claim is made, as long as premiums are maintained

Answer 274

A

It is a long-term policy that pays out a regular monthly income when the insured is unable to work because of a long-term illness or incapacity

Answer 275

A

An individual can take out policy anytime between 18-60 and they tend to end around planned retirement date

Answer 276

A

Most common deferred period are 4,13,26,52 weeks

Typically plans with a shorter deferred period are more expensive

Answer 277

A

Usually 50-60% for individual policies

Up to 75% for group policies

Answer 278

A

The policy does not pay a benefit until a specified period, e.g., 2 weeks of continuous sickness, has elapsed, but when the policy does pay out it is backdated to the first day of illness

Generally used by self-employed

Answer 279

A

Own occupation – policy pays out if individual can’t perform their current role

Suited occupation – policy pays out if individual can’t perform a similar role

Any occupation – policy pays out if individual can’t perform any role/occupation

Answer 280

A

Rehabilitation benefit – proportionately reduced benefit that aims to make up the difference due to less hours or different job

Proportionate benefit – similar to above but provides reduced benefit equivalent to reduction in earnings compared to 12 months prior to incapacity

Answer 281

A

To offset inflation risk

Answer 282

A

It covers the payment of premiums

If the policyholder of an IP plan suffers an accident or becomes ill and as a result is not working – the insurance company waives the premiums at the level, they were being paid

Answer 283

A

To encourage the claimant to return to work speedily

Answer 284

A

Concerned with morbidity – as they are looking at the chances of being too ill to work as opposed to the chances of dying

Chances of becoming ill significantly higher than the chance of dying

Answer 285

A

Age

Health

Smoking status

Occupation

Hobbies/ pursuits

Deferred period

Answer 286

A

Class 1 – managerial, executive, administrative and professional workers

Class 2 – shop workers, skilled light manual workers in non-hazardous jobs, catering

Class 3 – skilled workers in non-hazardous manual jobs

Class 4 – skilled workers in hazardous jobs

Answer 287

A

Guaranteed – premiums remain constant throughout life of contract

Reviewable – insurer increases premiums based on the insurer’s claim history

Guaranteed premiums tend to be significantly higher (certain policyholders like the certainty set premiums)

Answer 288

A

To match the Statutory Sick Pay Period of 28 weeks

Answer 289

A

CIC pays a lump sum on diagnosis of a number of specified illnesses, e.g., heart attack

Answer 290

A

Sets out standards that insurers must adopt in order for policies to be listed as CIC. Standards include: a common format for the way CIC is described to buyers, use of common generic terms and the use of model wordings

NB. The previous ABI Statement of Best Practice on Critical Illness included a list of core conditions the policies should cover

Answer 291

A

If CIC is added to a life assurance contract and the individual claims under the CIC policy, it is effectively an accelerated death payment during the lifetime of the individual, instead of the sum assured on death

Answer 292

A

Split trust

This allows the policyholder to receive any CIC benefit, while the life assurance cover benefit is payable to the beneficiaries

Answer 293

A

14-30 days

Answer 294

A

Provides an additional sum assured payable on the diagnosis of a critical illness in the child of the policyholder (subject to survival period)

It is underwriting-free and normally pays out either a set amount or percentage of the sum assured

Answer 295

A

Usually once the policyholder suffers a critical illness the policy pays out and the plan ceases; however, they could have an even greater need for life cover

Buy-back options allow a restricted amount of life cover to be taken out without further medical underwriting

Answer 296

A

Acts as a ‘catch-all’

Although the condition the claimant has is not specified in the policy conditions, the standard of the insured’s life is so poor that they are not able to live a ‘normal life’ again and so the policy pays out

Answer 297

A

Cancer

Kidney failure

Heart attacks

Stroke

Loss of limbs

Major organ transplant

Multiple sclerosis

Answer 298

A

Morbidity is primary factor along with medical history and family history
Expenses and investment are less important

Answer 299

A

The onus is on the policyholder to prove the claim they should inform the life office ASAP after falling ill

Answer 300

A

Individual policies

Answer 301

A

Typically, IP covers more conditions and replaces the claimant’s income which they are heavily reliant on

Answer 302

A

A type of plan that normally covers many more illnesses. Pays out a proportion of the sum assured on diagnosis and then adds additional payments when/if the illness progresses

Becoming increasingly common due to advancements in healthcare and medicine

Answer 303

A

A policy that pays out to replace earnings if policyholder is unable to work due to sickness or an accident. It is a basic form of insurance and most contracts are annual (or shorter)

Available as a standalone policy or as a bolt-on

Answer 304

A

Death

Permanent disablement

Loss of an eye

Loss of a leg, foot or toe

Loss of an arm, hand, finger or thumb

Answer 305

A

Medical expenses

Weekly sickness benefit

Answer 306

A

Acute conditions – those that occur rapidly and it’s usually possible to cure in a relatively short time

Answer 307

A

Comprehensive plans usually have a longer claim period, with higher limits and often a wider choice of hospitals

Extras such as home nursing and private ambulances are included

Answer 308

A

They are long-lasting and usually not curable so therefore treatment might not be right, instead long-term care insurance might be more appropriate

Answer 309

A

Instead of fully underwriting the policy, a moratorium basis can be used. Meaning that medical conditions the customer has suffered during the previous 5 years before the start of the policy are excluded for a period of 2 years

Answer 310

A

Basic plans

Standard plans

Comprehensive plans

Answer 311

A

Provides a monthly benefit to maintain mortgage payments for up to 12, 18 or 24 months (either linked to mortgage payments, percentage of salary or fixed amount)

Deferred period is typically 30-60 days

Answer 312

A

Short term income protection (STIP)

Answer 313

A

Similarities: benefits paid for a maximum of 2 years, also a similar deferred period of 30-60 days and have similar exclusions

Differences: the insured benefit is not limited to mortgage payments and a possibility of lump sum benefit for events such as loss of sight

Answer 314

A

Main aim of protection planning is to provide sufficient income to cover client’s needs in the event of death, disability, involuntary unemployment

Create a cash flow statement to provide the basis of what expenditure is required to support the income once held of the insured

Answer 315

A

It might affect their eligibility for means-tested State benefits

Value and liquidity of capital is important in order to make sure it’s enough/feasible to be used for protection purposes

Answer 316

A

Allows clients to receive treatment when they need/want it, rather than waiting for treatment under the NHS

Additional benefits such as private hospitals, ambulances and medical centres

Clients who travel overseas regularly

Answer 317

A

The trustees of the member’s pension arrangement are responsible for implementing a pension sharing order, although in practice this duty will usually fall to the scheme administrator.

In order to implement a pension sharing order the administrator may require information from the trustees of the pension arrangement, the member and the member’s ex-spouse/civil partner as well as the court.

Following implementation of the order the member’s ex-spouse/civil partner will receive a pension credit which may be held within the existing pension arrangement or transferred to another pension arrangement. The member’s pension receives a corresponding pension debit.

Answer 318

A

Both parties to the divorce are required to get valuations of their pension benefits. These are then used to agree whether a split is needed and if so, what that split will be. This information is required before the divorce hearing. It is important that the scheme/provider is made aware that the information is required for a divorce.

It’s worth noting and making your client aware that as the split is a percentage of the value of the plan, the amount is not guaranteed. This is because the unit price of the funds will change between the original valuation to agree the split and when the benefits are actually shared after the divorce is finalised the figure will change. This is not a mistake. The rules in Scotland are different as it is monetary amount that is agreed and not a percentage.

The pension sharing order may be implemented on any day, chosen by the trustees, within what’s known as the implementation period. The implementation period runs for 4 months from the date of the pension sharing order or the date the trustees have all the information they need if later. The scheme administrator chooses the valuation date within the implementation period on which to calculate the actual share of the pension rights. The benefits must then be transferred before the end of the implementation period.

Answer 319

A

1 - Establish and define the client and personal financial planner relationship.

2 - Gather client data and determine goals and expectations.

3 - Analyse and evaluate the client’s financial status.

4 - Develop and present the financial plan.

5 - Implement the financial planning recommendations.

6 - Monitor the financial plan and the financial planning relationship.

Answer 320

A

On account of:

age,
state of health or mind,
recently bereaved.

Answer 321

A

Life assurance and pensions - keep records for 5 years.

Answer 322

A

Specific
Measurable
Action-related
Realistic
Time-related

Answer 323

A

Wills - important for clients to understand effects of dying intestate
On intestacy - children in family entitled to their share at age 18
Ensure will is up to date and reflects client’s wishes
Gifts and loans – lifetime gifts will either be exempt (no tax at all), potentially exempt – PET- no lifetime tax, taxed if die within 7 years and value over NRB, taper available after 3 years - or chargeable - CLT – lifetime tax at 20% if over NRB, then 40% (less 20% already paid) due on death within 7 years and value over NRB, taper available after 3 years, loans repayable on death
Nil rate band is £325,000 2021/22 - transferable between spouses/civil partners
Residence nil rate band where residential property left to direct descendants £175,000 2021/22 – this is also transferable if it is unused in full or in part of 1st death of spouse/civil partner, tapered if net value of estate over £2m by £1 for every £2 excess
Both expected to remain the same until the end of 2025/26 tax year
Trusts - note if client is settlor, trustee, or beneficiary of a trust
Desirable to have copy of trust deed
Types of trust: bare trust, interest in possession, discretionary, trusts for vulnerable beneficiaries
Include details of any Power of Attorney, Enduring Power of Attorney or Lasting Power of Attorney

Answer 324

A

Consider:

Any mismatch between client’s risk profile and existing investments
Any excess of investments in one asset class, market or provider
Charges
Objectives
Any With Profit issues
Investment risk issues - identify:

o 3 to 5-year volatility on each investment

o Volatility for whole portfolio versus client’s attitude to risk

o Drawdown per investment i.e., maximum % loss over period of ownership

o Asset class, economic sector and market % breakdown

o Assessment of probability of client meeting investment targets

Answer 325

A

List immediate and potential dependants covered
For each plan list who is covered (immediate or potential dependants)
Calculate financial loss expected on death/incapacity
Calculate length of time support required
Determine possible future dependant’s needs e.g., school funding or assistance with house purchase
Existing liabilities e.g., mortgage should be covered by life and health insurance
Compare existing cover to need identified

Answer 326

A

Highlight income and CGT issues
How much income is subject to higher rate tax - pension opportunities?
Tax planning:

o Use of marriage allowance

o Spread/transfer ownership

o Appropriateness of tax wrappers

o Potential CGT on switching

o Consider disposing in stages to use more than one CGT annual exempt amount

o Delay until a basic rate taxpayer in retirement

o Child benefit position

Answer 327

A

Lump sum and income paid tax free if within 2 years

Answer 328

A

Lump sum and income taxed at recipient’s marginal rate

Answer 329

A

Life assurance - base on need not standard calculations

Step 1: Identify need (spouse/children)
Step 2: Quantify level of cover (capital, long and short-term income)
Step 3: Determine period of cover (different for each need)
Step 4: Consider existing policies
Step 5: Recommend appropriate policy/s

Capital needs (in event of death)
o Funeral expenses
o Emergency fund
o Specific bequests
o Debts and mortgage
o IHT
o Aggregate to calculate total lump sum needed

Long-term income needs
o Annual personal living expenses of surviving spouse (deduct costs saved e.g., mortgage)
o Add: additional costs e.g., childcare, replacing employer benefits
o Deduct: continuing long-term net income - survivor’s income
o Deduct: long-term net income e.g., widow’s pension
o Calculate total long-term income needed

Short-term income needs
o Extra short-term income e.g., childcare
o Add: other short-term income
o Calculate total short-term income needed

Answer 330

A

Term fixed sum on death within term, level or decreasing

Whole of life fixed sum on death whenever it occurs, covers funeral expenses, legacies, IHT bill

Consider other factors e.g., inflation, additional benefits for family, flexibility, waiver of premium,
existing cover, timescales, State benefits

Answer 331

A

Term linked to need, e.g., expected financial dependency of child (18 or end of university?)

Full recommendation often too costly - consider the following in order to reduce cost:
o Reduce required income - scale back or look for alternative sources of income
o Could period of cover be shortened?
o Are additional policy features e.g., future increase options really needed?
o Could additional cover be provided through employer under PP rules?
o Could cover be provided as part of a package?

Relevant life policies
o Stand-alone death in service plans
o To benefit from tax advantages must only provide lump sum death benefit payable before 75
to an individual, trust or charity and must not provide any other benefit, have a surrender
value, or be mainly used for tax avoidance
o If these conditions are met, policy does not form part of pension value for lifetime or annual
allowances nor is it taxable benefit in kind, benefits are also free from IHT if paid through
discretionary trust

Answer 332

A

Capital needs are generally high priority - mortgage usually largest

Long-term income
o Consider if essential to maintain same standard of living
o Can surviving spouse work?
o Deduct State benefits

Incapacity and health
o How long could family cope with lack of income?
o How long do employer benefits last?
o Identify level of income provided
o Deduct saving and survivor income

Answer 333

A

Income while unable to work

Covers many illnesses

Based on ability (not inclination) to work

Benefit based on pre-disability earnings

N.B. There may be a case for IP and CIC although compromise (due to cost) may be required

Answer 334

A

Benefit not limited to earnings

Restricted list of illnesses

Benefit not dependent on earnings/ability to work

Provides capital lump sum

N.B. There may be a case for IP and CIC although compromise (due to cost) may be required

Answer 335

A

Gives clients ability to choose when and where they receive treatment

Employer provision - few tax advantages (premium is fully taxable and subject to Class 1A NICs)

Private provision - level and cost varies considerably, can add spouse and children

Answer 336

A

State help with mortgage payments for those receiving income related benefits

Support for Mortgage Interest (SMI)

Interest up to £200,000 of mortgage/loan (£100,000 if receiving State pension credit)

Waiting period is 39 weeks after claiming benefits

No waiting time for those on State pension credit

2-year limit for some applicants

Since 6 April 2018, payable as a loan not a benefit
o Repayable with interest on sale of home

Answer 337

A

In-house or outsource to discretionary investment management firm - generally based on:
o Strength of investment process
o Continuity of manager
o Proven investment style
o Clearly defined investment objectives
o Strong and consistent past performance record

Income or growth consider tax implications

Active or passive: passive funds becoming increasingly popular as deliver asset allocation at lower
cost and difficult to predict which active managers will outperform

Fund of fund or fund of choice - fund of fund can provide simple, managed solutions/valuable on
smaller portfolios

Fund managements styles
o Absolute return aim for positive returns in all markets, rather than aim to beat a
benchmark
o Bottom-up pick stock based on fundamental analysis (value investing)
o Top-down pick sectors in economy then pick stock within sector
o Sector rotation top-down manager switches sectors/industries based on economic and
technical indicators

Fund charges - ensure client is getting value for money

Answer 338

A

Past performance - basis of fund selection may be past performance

Diversification - in 2008/09 all international markets and most asset classes moved together

Investment planning is more of an art than a science and portfolios may not behave as expected
particularly over the short-term

Answer 339

A

Initial Input: No relief

Growth: Tax free

Encashment: Tax free

Answer 340

A

Initial Input: No relief

Growth: Income taxable / internal gains tax free

Encashment: CGT on gains

Answer 341

A

Initial Input: No relief

Growth: Income and internal gains deemed to have been taxed at basic rate

Encashment: No CGT, Qualifying tax-free, Non-qualifying gains subject to higher rates of income tax

Answer 342

A

Initial Input: No relief

Growth: UK tax free, Except withholding tax.

Encashment: No CGT, Full income tax on gains.

Answer 343

A

Initial Input: Full relief, subject to limits.

Growth: Tax free

Encashment: 25% tax free, 75% taxable.

Answer 344

A

Initial Input: 30% income tax relief, Tax reducer (hold for 3 years) CGT deferral relief available.

Growth: Taxable dividends.

Encashment: CGT free on disposal (after 3 years).

Answer 345

A

Initial Input: 50% income tax relief, Tax reducer (hold for 3 years) CGT reinvestment relief available.

Growth: Taxable dividends.

Encashment: CGT free on disposal (after 3 years).

Answer 346

A

Initial Input: 30% income tax relief, Tax reducer (hold for 5 years).

Growth: Tax free.

Encashment: CGT free on disposal (from outset).

Answer 347

A

Provides biggest tax advantage for most investors for cash and fixed interest

Less so now personal savings allowance in place

Also consider IHT disadvantages

£20,000 (2021/22) limit spread across all four (IFISA, cash (including H2B), stocks and shares or
Lifetime)

Help to Buy ISA
o Every £200 saved, government bonus £50 up to max £3,000 on £12,000 savings
o Bonus on home purchase up to £450k in London, £250k elsewhere
o Closed to new savers 30 Nov 2019
o Existing savers can continue to contribute until 1 Dec 2030

Innovative Finance ISA
o Peer to peer ISA, separate to cash/stocks and shares ISA

Lifetime ISA
o Since April 2017, available to under 40s to save for first home/retirement
o Up to £4,000 per year of £20,000 overall limit, £1,000 government bonus
o Withdraw funds for purpose other than house purchase before age 60 generally lose bonus,
interest/growth on bonus plus 5% charge

Junior ISA
o For children not eligible for child trust fund /children wishing to transfer from child trust fund
o At 16, child takes control of account and can decide where to invest
o At 18, becomes adult ISA
o Parental settlement rules don’t apply

Continuing ISA
o On death, ISA becomes continuing account of a deceased investor (continuing ISA)
o No further funds added
o Income and capital continue to accrue tax-free until earlier of estate being administered, ISA
closed, 3 years and one day from death

Additional permitted subscription
o If an ISA holder in a marriage or civil partnership dies their ISA benefits can be passed to their
spouse/civil partner via an additional ISA allowance
o The surviving spouse/civil partner can invest as much into their own ISA as their
spouse/partner used to have in addition to own annual limit
o If higher, the value at the point the deceased’s ISA stopped being a continuing account can
be invested, rather than the value at date of death.

Answer 348

A

Subject to tax on income they generate but free of tax until encashment

Can use CGT annual exempt amount then taxed at 10% or 20%

Most appropriate for growth-oriented investments

Answer 349

A

2021 average boarding fee in sixth form £12,573 per term

2021 average day school fee in sixth form £5,489 per term

Since 2017 - university fees up to £9,250 a year in England

Can be financed by loans

Loan is repaid at annual rate of 9% of the former student’s income that is over £27,295 a year

Undergraduate education - affluent parents have bought property for student/s to live in

Support now available for Masters and PHDs in form of loans, also need to consider loss of
earnings

Lifetime cash-flow projection would identify periods of heavy expenditure e.g., children attending
expensive schools at the same time

Advisable to build up a school fee reserve (emergency fund) to avoid having to withdraw child
from school in event of financial difficulties

Answer 350

A

No tax relief on contributions

No employer contributions

£20,000 maximum contributions pa

Fund income and growth free from tax

Fund can be accessed at any age, tax free and without penalty

Answer 351

A

Tax efficiency varies according to client’s circumstances

Higher rate taxpayers whose pension contributions are funded by their company and would otherwise pay tax at 40% or 45% and NICs on their remuneration will benefit the most

Maximum tax relief is 45% plus 13.8% employer and 2% employee’s NICs

Answer 352

A

Ensures assets are given in accordance with client wishes

Provides guardianship for children

Facilitates tax planning

Alternative is intestacy, NB co-habitees do not inherit
o First £270k plus chattels goes to spouse/civil partner
o Remainder split 50:50 surviving spouse/civil partner and children

Answer 353

A

Features

Cash lump sum gifted into bare (PET) or discretionary (CLT) trust

Invest in investment bond

Fixed payments are made from bond to settlor

5% rule often used

PET/CLT is less than cash gifted as discount given to reflect the fact some of the funds come back to the settlor

Medical underwriting required

Settlor should spend returned funds

Pros
Effective for IHT
Regular income
Neither GWR nor POAT apply
Discount
If value under available NRB, no IHT charges (immediate, periodic, exit) for discretionary trust

Cons
Inflexible income
5% runs out after 20 years
Bond CGT inefficient

Answer 354

A

Features

Settlor creates trust

Makes interest-free cash loan to trust

Trustees buy investment bond

Capital remains in estate (loans repayable on demand / death)

5% rule can be used to make loan repayments

Or lump sums can be taken

IHT charges (immediate, periodic, exit) are after deduction of loan

No exit charge on loan repayments

Pros
Growth outside of estate straight away
Full access to capital
‘Income stream’

Cons
Capital remains in estate
5% runs out after 20 years
Should spend returned funds
No immediate benefit
Trustees should ensure trust always has enough to repay the loan

Answer 355

A

Business relief - if transferred as lifetime gift or on death at least 2 years after acquisition then 100% relief and free from IHT

Life assurance: written in trust to cover potential IHT liability
o Ensures funds are available to pay IHT on lifetime gifts (if death occurs within 7 years)
o Provides cash to pay IHT on death
o Able to use annual/normal expenditure exemption

Drawback is that regular commitment is needed thus reducing spendable income

Answer 356

A

Advantages

Beneficiaries cannot access without trustee agreement
Tax planning flexibility e.g., skipping a generation
Can hold assets for benefit of a minor

Disadvantages

Complex
Expensive to administer
Can lead to additional income tax, CGT and IHT

Answer 357

A

An agreed lump sum of capital that the client is willing to lose access to is placed into the Trust.
The Trust then invests the funds received into a single premium life assurance Investment Bond.
A level of regular income withdrawals is taken, to meet income needs agreed upon.
The lump sum is notionally split into two parts following underwriting.
The discounted element based upon the level of likely income the client will receive back during their lifetime is removed from the estate for IHT immediately.
This will be based on client’s age, health and level of income taken.
If the client is in good health, the discount should be significant.
The balance will be treated as either a CLT if Discretionary Trust or PET if a Bare Trust is used and then this sum will also become exempt from IHT after 7 years.

Answer 358

A

It’s a loan so not a gift.
Basically lump sum into trust with settlor as trustee and whoever else.
Invested into an Investment Bond.
Can take capital lump sums when they want and use the 5% deferred Bond allowance.
Loan remains inside estate for IHT as it’s not a gift but any growth is outside of it.
Only really effective for IHT if the client spends the loan repayments/capital lump sums/5% deferred allowance.
So the idea is you spend the capital over time to get it out of your estate whilst having the investment growth outside of your estate.
Flexible as client can have all the loan back any time if they wish whereas with a DGT you can’t change the levels of income and therefore can’t have access to the capital via ad hoc lump sums.

Answer 359

A

Provide additional opportunities for the client to ask questions about the discussions held and information provided.
Continuously seek confirmation that the client has understood the discussions held and information provided.
Offer the client the opportunity to have a family member or friend present during the meetings and discussions.
Offer the client the opportunity to complete any paperwork, or agree to a transaction, after a period of further consideration.
If for any reason it is felt that the client does not understand the options or service being offered, then the transaction should not be proceeded with at that time.

Answer 360

A

What is her budget in this area?
What age will Sasha be financially independent?
Are there any other assets that can be used?
Does she wish to earmark any assets for her protection needs?
Is she expecting any inheritances?
Have the appropriate nomination forms been completed for her pension?
Smoker status/hazardous pursuits/health issues?
Views on inflation?
Does she have a Will or LPA in place?

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