Exam October 2017 - Nigel & Mona

Question 1

Explain briefly to Nigel the benefits of being a member of his employer’s (SAYE) Sharesave scheme.

Answer 1

Benefits:
• Tax free interest on savings account.
• Buy shares at possible discounted price.
• No tax on difference in share price and price paid.
• Possible to transfer shares into pension/ISA.
• No obligation to purchase shares (at the end of the term).

Question 2

Explain to Mona five advantages and five disadvantages of using a flexi-access drawdown arrangement rather than a lifetime annuity when she retires later this year.

Answer 2

Advantages:
• Flexible income.
• Tax efficient income.
• Potential for growth.
• Better death benefits/more flexible death benefits/IHT efficient.
• Can annuitise later/annuity rates may improve.

Disadvantages:
• Investment risk.
• More complex/requires ongoing advice.
• Greater costs.
• Money purchase annual allowance (MPAA) maybe triggered/£4k.
• Income not guaranteed/funds may be frittered.

Question 3

Nigel is interested in executing a deed of variation in respect of the legacy from his aunt.
Describe how a deed of variation may be established.

Answer 3

• Must be in writing/legal document/signed.
• Deed must state what is being varied in Will/intestacy.
• Must state who is benefitting from variation.
• All affected beneficiaries must agree.
• All beneficiaries must be 18/sound mind/have legal capacity.
• Treated as taking place on donor’s death.
• Must be executed within two years of death.
• The deed should not be for consideration or money or money’s worth.
• Should state that variation has effect for Capital Gains Tax/Inheritance Tax.
• Should contain an exemption certificate for variations of stocks, shares and securities.

Question 4

Recommend the actions that Nigel and Mona could take to reduce the potential Inheritance Tax liability that would arise on their deaths.

Answer 4

• £3,000 annual allowance/small gifts/gifts out of normal expenditure.
• Gifts to charity/political party.
• Execute a deed of variation.
• Make use of tenancy in common/transfer home to joint names/make use of MRNRB.
• Nigel to make use of (or arrange to make use of) late wife’s NRB.
• Potentially exempt transfers (PET)/Chargeable Lifetime Transfer (CLT).
• Whole of Life Joint Life Last Survivor in trust.
• Place bond in trust.
• Nominations on pension/pension contribution.
• Enterprise Investment Scheme (EIS)/ Business Property Relief (BPR) qualifying assets/other schemes
• Discounted Gift Trust/gift and loan trust.
• Wills.

Question 5

Nigel and Mona plan to move permanently to their holiday home, and let out their current home, in 5 years’ time.
State the factors that Nigel and Mona should be aware of, in respect of private residence relief.

Answer 5

• Must make an election of main residence within two years of moving.
• Make election jointly.
• If don’t make election – Her Majesty’s Revenue & Customs (HMRC) makes election.
• Capital Gains Tax not payable on main residence;
• for 18 months after moving out.
• Property must be suitable for PRR/less than 0.5 hectares /5000sqm/no business use.
• To qualify, must reside/have resided in property.

Question 6

Nigel and Mona are disappointed with the performance of their with-profits bond.
State the information a financial adviser would require, to advise Nigel and Mona on whether to surrender or retain this bond.

Answer 6

• Amount of investment/top up investment.
• Date of investment.
• Withdrawals made.
• Underlying investments of fund/asset allocation.
• Reversionary bonuses/underlying performance.
• Terminal bonus.
• Market Value Reduction (MVR)/penalties/surrender value.
• Charges.
• Financial strength.
• Guaranteed bonuses.

Question 7

Nigel and Mona are considering Agnes’s long-term care costs.

Explain briefly, the potential State benefits that may be available to assist with these costs.

Answer 7

• Attendance allowance.
• If in need of care night/or night and day.
• Higher rate may be available dependant on care needs.
• Registered Nursing Care contribution.
• Paid for nursing direct to home.
• Registered Nursing Care contribution/attendance allowance - tax free/not means tested.

Question 8

Recommend and justify the actions that Nigel and Mona could take to improve the tax efficiency of their savings and investments.

Answer 8

• Nigel is ART and Mona basic rate tax payer.
• Transfer bank savings to Mona.
• Saves tax on interest.
• Maximise ISAs.
• Tax efficient.
• Utilise premium bonds.
• Make pension contributions/Venture Capital Trust (VCT)/Enterprise Investment Scheme (EIS).
• Tax relief/pension commencement lump sum (PCLS).
• Assign bond to Mona.
• Saves tax of 25% on encashment.
• Transfer shares to Mona/interspousal transfer.
• Leaving sufficient for Nigel to use Dividend allowance/CGT allowance.
• Saves dividend tax of 30.6%/CGT of 10%.
• Use CGT allowance.

Question 9

Identify seven issues that a financial adviser should discuss with Nigel and Mona at their next annual review meeting.

Answer 9

• Personal circumstances.
• Fund valuations/Performance.
• Rebalance/Attitude to risk.
• Income change/affordability/tax status/New funds to invest.
• New products/legislation/taxation.
• Use of tax allowances/gifting for Inheritance Tax
• Change in economic circumstances/market/political.