Chapter 6 Flashcards
(152 cards)
1
Q
Barbara has been told that her investment is trading at a discount to the asset value. What type of investment does she have? Select one: a. Unit trust. b. Open ended investment company share. c. Exchange traded fund. d. Investment trust.
A
d. Investment trust.
SEE CHAPTER 6G2C
2
Q
A retail UCITS unit trust has 20 holdings; by how many does this exceed the minimum? Select one: a. 8. b. 0. c. 4. d. 10.
A
c. 4.
SEE CHAPTER 6B6
3
Q
Lora has a unit trust and Beth has an OEIC. An advantage for Beth of having the OEIC is that:
Select one:
a. it is more tax efficient than Lora’s unit trust.
b. it is able to issue different classes of share, such as capital units.
c. the dealing costs on OEICs are significantly lower.
d. only Beth is able to hold her OEIC within an ISA.
A
b. it is able to issue different classes of share, such as capital units.
SEE CHAPTER 6D5
4
Q
Peter, a higher rate tax payer, received an income payment of £2,700 from a UK equity income unit trust. Assuming this is his only investment income, what tax is Peter liable for on this payment? Select one: a. £280. b. £877.50. c. £1,028.70. d. £227.50.
A
d. £227.50.
SEE CHAPTER 6C10
5
Q
Kenneth has bought a European-style call option with an expiry date in 3 months’ time. The alternatives available to him at present do NOT include:
Select one:
a. exercising the option on the expiry date.
b. exercising the option immediately.
c. letting the option expire worthless.
d. selling the option.
A
b. exercising the option immediately.
SEE CHAPTER 602B
6
Q
Joyce is due to invest £40,000 in a unit trust, her first investment into a regulated product. You can reassure her that her rights are protected by the:
Select one:
a. trustees of the unit trust, along with the FSCS and via the complaints and arbitration procedures alone.
b. trustees of the unit trust, along with the FSCS alone.
c. trustees of the unit trust, along with the FSCS, via the complaints and arbitration procedures and depositary safeguarding.
d. trustees of the unit trust alone.
A
a. trustees of the unit trust, along with the FSCS and via the complaints and arbitration procedures alone.
SEE CHAPTER 6C5
7
Q
Gert has a taxable income of £20,000 and his only other form of income is via a unit trust which invests only in corporate bonds. It pays him income of £600 every six months. What is Gert's tax liability on this income over a year, if any? Select one: a. £300. b. £0. c. £40. d. £240.
A
c. £40.
SEE CHAPTER 6C10
8
Q
If an offshore fund invests in equities, the dividends it receives will usually be subject to a: Select one: a. reclaimable withholding tax. b. reclaimable dilution levy. c. non-reclaimable dilution levy. d. non-reclaimable withholding tax.
A
d. non-reclaimable withholding tax.
SEE CHAPTER 6F7
9
Q
George has taxable income of £25,000 whereas Henry, his brother, has taxable income of £45,000. They are both invested in the same fixed interest based OEIC fund that produces an income of £1,500 per annum gross. They have no other investment income. Their respective tax liabilities from their OEIC income are: Select one: a. £100 for George and £400 for Henry. b. £300 for George and £600 for Henry. c. £100 for George and £200 for Henry. d. £200 for George and £400 for Henry.
A
a. £100 for George and £400 for Henry.
SEE CHAPTER 6C10
10
Q
Charlotte has 101% of the value of her investment as life cover. Her product is most likely to be a[n]: Select one: a. ISA. b. investment trust. c. investment bond. d. structured product.
A
c. investment bond.
SEE CHAPTER 6H15
11
Q
John's income tax liability for 2018/19 is £25,000 and for 2017/18 it was £28,000. If he invests £500,000 into an Enterprise Investment Scheme in October 2018, the maximum income tax relief he could receive is: Select one: a. £150,000. b. £25,000. c. £53,000. d. £28,000.
A
c. £53,000.
SEE CHAPTER 6K1A
12
Q
Steve is a higher rate tax payer and has made a gain of £21,000 on his fixed interest based OEIC, having made no other gains or losses in the current tax year. How much CGT will he pay, if any? Select one: a. £1,940. b. £930. c. £2,340. d. £1,860.
A
d. £1,860.
SEE CHAPTER 6C11
13
Q
Stephen has recently invested £150,000 into a unit trust. His bid / offer spread is most likely to be around: Select one: a. £13,500. b. £9,000. c. £6,000. d. £3,000.
A
b. £9,000.
SEE CHAPTER 6C22
14
Q
Entities A & B are involved in the running of a unit trust. Entity A legally holds the trust assets and Entity B is responsible for the day-to-day running of the unit trust. From this information you can deduce that:
Select one:
a. Entity A is the Authorised Corporate Director and Entity B is the depository of the unit trust.
b. Entity A is the trustee and Entity B is the manager of the unit trust.
c. Entity A is the manager and Entity B is the trustee of the unit trust.
d. Entity A is the depository and Entity B is the Authorised Corporate Director of the unit trust.
A
b. Entity A is the trustee and Entity B is the manager of the unit trust.
SEE CHAPTER 6C1
15
Q
William, a higher rate tax payer, has made a capital gain on his Venture Capital Trust after 4 years. If he encashes the plan now he will:
Select one:
a. pay CGT with no repayment of income tax relief originally received.
b. pay income tax only on the growth over the period.
c. potentially pay CGT and must repay any income tax relief originally received.
d. pay no CGT but must repay any income tax relief originally received.
A
d. pay no CGT but must repay any income tax relief originally received.
SEE CHAPTER 6K2A
16
Q
A non-retail OEIC is valued at £10,000,000. Based on this, what is the maximum amount that the fund may borrow, if any? Select one: a. £1,000,000 with no time restrictions. b. £2,500,000 with no time restrictions. c. £1,000,000 with time restrictions. d. Nil.
A
a. £1,000,000 with no time restrictions.
SEE CHAPTER 6D1
17
Q
Richard has bought a December 2018 £2.60 call option on Barclays. The premium is 35p. If the present share price is £2.40, what is the intrinsic value and the time value of the option? Select one: a. Intrinsic value 20p, time value 15p. b. Intrinsic value 35p, time value nil. c. Intrinsic value nil, time value 35p. d. Intrinsic value -20p, time value 55p.
A
c. Intrinsic value nil, time value 35p.
SEE CHAPTER 602B
18
Q
Nial, a higher rate taxpayer, receives £7,000 income from his equity based OEIC. Assuming this is his only investment income, what is his tax liability on this income? Select one: a. £2,000. b. £1,625. c. £762. d. £650.
A
b. £1,625.
SEE CHAPTER 6C10
19
Q
Georgia is a trustee and is required to pay 7.5% on some of the dividends and 38.1% on the rest. This must be a[n]: Select one: a. interest in possession trust. b. bare trust. c. discretionary trust. d. bereaved minor trust.
A
c. discretionary trust.
SEE CHAPTER 6C10
20
Q
Samuel is a fund manager who has recently purchased a FTSE 100 call option from the fund’s assets. The risk he is taking is:
Select one:
a. limited to the premium he paid for the option, plus transaction costs.
b. unlimited.
c. limited to the premium he paid for the option.
d. limited to the transaction costs.
A
a. limited to the premium he paid for the option, plus transaction costs.
SEE CHAPTER 602A
21
Q
The early surrender value of Steven’s life policy was £46,000, so he sold it on the second-hand market for £60,000 to Beryl. It is TRUE to say that:
Select one:
a. if the policy had run for less than 10 years when it was sold, it remains qualifying and Steven has no income tax to pay.
b. if the policy had run for more than three quarters of its term when it was sold, it becomes non-qualifying.
c. Steven will have to declare the difference between the surrender value and sale value on his tax return.
d. Beryl may have a liability to capital gains tax when the endowment matures, or on prior disposal.
A
d. Beryl may have a liability to capital gains tax when the endowment matures, or on prior disposal.
SEE CHAPTER 6H27C
22
Q
Spires Investment Trust has 22 million ordinary shares and 4 million outstanding warrants that give the holders the right to subscribe at £1 per share. The trust’s assets are worth £24 million. It would be CORRECT to say that:
You must select ALL the correct options to gain the mark:
a. the diluted net asset value is £1.08 (to 2 decimal points).
b. only the undiluted net asset value is expressed as a value per share.
c. the undiluted net asset value is £1.09 (to 2 decimal points).
d. when warrants are exercised, the number of ordinary shares and the value of the trust increase proportionately.
e. the diluted net asset value represents the true picture if all warrants were exercised.
A
a. the diluted net asset value is £1.08 (to 2 decimal points).
c. the undiluted net asset value is £1.09 (to 2 decimal points).
e. the diluted net asset value represents the true picture if all warrants were exercised.
SEE CHAPTER 6G2B
23
Q
An important difference between exchange traded funds (ETFs) and exchange traded notes (ETNs) is that only:
Select one:
a. ETFs track an index.
b. ETFs are sensitive to changes in interest rates.
c. ETNs give access to specialist market niches.
d. ETFs hold a portfolio of actual investments.
A
d. ETFs hold a portfolio of actual investments.
SEE CHAPTER 6I
24
Q
The holder of an option is able to do all of the following, EXCEPT:
Select one:
a. exercise the option.
b. defer any decisions until after the strike date.
c. sell the option prior to expiry.
d. let the option expire worthless.
A
b. defer any decisions until after the strike date.
SEE CHAPTER 6O2B
25
```
Jack & Jill made gains of £22,000 and £35,000 respectively from their OEIC holdings. Neither has made any other gains or losses in the 2018/19 tax year. If Jack already has taxable income of £18,000 and Jill has taxable income of £40,000, what is their combined capital gains tax liability on these gains?
Select one:
a. £5,810.
b. £8,378.
c. £6,860.
d. £5,690.
```
d. £5,690.
SEE CHAPTER 6D6
26
```
Joseph can decide whether he exercises his right to SELL an underlying asset at a certain price, at any time during a specified period. He has a[n]:
Select one:
a. European style call option.
b. American style put option.
c. American style call option.
d. European style put option.
```
b. American style put option.
SEE CHAPTER 6O2B
27
```
Lindsey, an additional rate taxpayer, invested £80,000 in an onshore investment bond. After six and a half years she makes her first withdrawal of £30,000. The income tax liability as a result of this withdrawal will be:
Select one:
a. £1,500.
b. £500.
c. £1,000.
d. £3,000.
```
b. £500.
SEE CHAPTER 6H25C
28
Kate is considering investing in a with-profit bond. She should be aware that:
You must select ALL the correct options to gain the mark:
a. she may benefit from additional profits should the life office demutualise in the future.
b. they provide investors who are relatively risk-averse with some exposure to the equity markets.
c. bonuses can smooth out returns in times of poor investment performance.
d. a market value adjustment (MVA) will always be applied on her death.
e. over the last ten years, the returns on most with-profit policies have not provided a 'real return'.
a. she may benefit from additional profits should the life office demutualise in the future.
b. they provide investors who are relatively risk-averse with some exposure to the equity markets.
c. bonuses can smooth out returns in times of poor investment performance.
SEE CHAPTER 6H5
29
Property funds may only be held within an Individual Savings Account (ISA) if:
Select one:
a. the fund is a real estate investment trust.
b. the fund owns no properties directly, only shares in property companies.
c. they do not restrict the investors' ability to access their funds.
d. all the properties owned by the fund are in the UK.
c. they do not restrict the investors' ability to access their funds.
SEE CHAPTER 6J2
30
```
Counterparty risk is mostly associated with:
Select one:
a. OEICs.
b. unit trusts.
c. structured products.
d. investment bonds.
```
c. structured products.
SEE CHAPTER 6R4
31
All the warrant holders within an investment trust decide to exercise the warrants they hold. Where the option price is below the market share price, this will have a:
Select one:
a. positive impact on the undiluted net asset value (NAV).
b. negative impact on the undiluted net asset value (NAV).
c. positive impact on the diluted net asset value (NAV).
d. negative impact on the diluted net asset value (NAV).
b. negative impact on the undiluted net asset value (NAV).
SEE CHAPTER 6G2B
32
```
Tony has income tax liabilities of £42,000 in the current tax year and £45,000 in the previous tax year. What amount does he need to contribute to a Venture Capital Trust in the current tax year to reduce these tax liabilities as much as possible?
Select one:
a. £150,000.
b. £290,000.
c. £200,000.
d. £140,000.
```
d. £140,000.
SEE CHAPTER 6K2A
33
In respect of exchange traded funds it is TRUE to say that:
You must select ALL the correct options to gain the mark:
a. they are index-tracking funds.
b. no stamp duty is payable on purchases.
c. they are traded like a single share through stockbrokers.
d. management fees tend to be higher than other index-tracking investments.
e. they are ineligible for inclusion in Individual Savings Accounts.
a. they are index-tracking funds.
b. no stamp duty is payable on purchases.
c. they are traded like a single share through stockbrokers.
SEE CHAPTER 6I1
34
```
William, who has a taxable income of £65,000, receives a dividend distribution of £11,800 from his unit trust holding. Assuming he has no other dividend income, what amount of income tax will he need to pay on this distribution?
Select one:
a. £3,185.
b. £2,210.
c. £3,733.80.
d. £3,835.
```
a. £3,185.
SEE CHAPTER 6C10
35
The first income distribution from a unit trust includes an equalisation payment, which:
You must select ALL the correct options to gain the mark:
a. is partially subject to income tax.
b. could not be applied to an open-ended investment company.
c. aims to allow the same pence per unit dividend payment to be made to all unitholders.
d. represents a partial refund of the original capital invested.
c. aims to allow the same pence per unit dividend payment to be made to all unitholders.
d. represents a partial refund of the original capital invested.
SEE CHAPTER 6C8
36
Mr and Mrs Green have three children, Chris aged 20, Andy aged 16 and Linda aged 9. Which statements are CORRECT in respect of their 2018/19 Individual Savings Account (ISA) allowances?
You must select ALL the correct options to gain the mark:
a. All three children have the same ISA allowances.
b. Mr and Mrs Green can each pay a total of £20,000 into cash ISAs, and £20,000 into stocks and shares ISAs.
c. The maximum that the family can pay into stocks and shares ISAs is £60,000.
d. Three members of the family can pay into stocks and shares ISAs.
e. Andy can pay into a cash ISA and a Junior ISA in the current tax year.
c. The maximum that the family can pay into stocks and shares ISAs is £60,000.
d. Three members of the family can pay into stocks and shares ISAs.
e. Andy can pay into a cash ISA and a Junior ISA in the current tax year.
SEE CHAPTER 6L2
37
Cerys receives distributions from a unit trust that is invested in a UK gilt fund. It is TRUE to say that:
You must select ALL the correct options to gain the mark:
a. if Cerys is an additional rate taxpayer, she is subject to £450 income tax on an interest distribution of £1,000.
b. if Cerys is a non-taxpayer, she can reclaim any tax paid from HM Revenue and Customs.
c. if Cerys is a basic rate taxpayer, she has no further liability if the distribution is within her personal savings allowance.
d. if Cerys is a higher rate taxpayer, she is subject to a further £225 income tax on an interest distribution of £800.
e. the distributions are paid gross.
a. if Cerys is an additional rate taxpayer, she is subject to £450 income tax on an interest distribution of £1,000.
c. if Cerys is a basic rate taxpayer, she has no further liability if the distribution is within her personal savings allowance.
e. the distributions are paid gross.
SEE CHAPTER 6C10
38
Steven owns shares in three different companies with a total value of £25,000. By switching these shares into unit trusts he will be able to:
You must select ALL the correct options to gain the mark:
a. reduce the overall costs.
b. avoid any future capital gains tax liabilities.
c. benefit from professional fund management.
d. gain exposure to a number of different types of securities.
e. remove any systematic risk.
c. benefit from professional fund management.
d. gain exposure to a number of different types of securities.
SEE CHAPTER 6T2A/B
39
Liam has invested in a life assurance policy. With regard to the tax treatment of his investment, it is TRUE to say that:
You must select ALL the correct options to gain the mark:
a. interest from gilts is exempt from income tax.
b. dividends from UK companies are taxed at 20%.
c. capital gains on shares and property are taxed at 20%.
d. gains on gilts and corporate bonds are exempt from capital gains tax.
e. non-savings income, such as rent, is received net of 20% notional tax.
c. capital gains on shares and property are taxed at 20%.
d. gains on gilts and corporate bonds are exempt from capital gains tax.
SEE CHAPTER 6H25A
40
```
Loic and Robin are both UK residents and higher rate taxpayers. They have both realised a gain of £15,000. Loic's is from his interest-producing reporting offshore fund and Robin's is from his non-reporting offshore fund. Assuming they have both fully utilised their CGT exemption and their personal savings allowance in the 2018/19 tax year, their tax liabilities will result in:
Select one:
a. Robin paying £1,800 more than Loic.
b. Robin paying £3,000 more than Loic.
c. Loic paying £3,000 more than Robin.
d. Loic paying £1,800 more than Robin.
```
b. Robin paying £3,000 more than Loic.
SEE CHAPTER 6F6A/B
41
```
John, a higher rate taxpayer, firmly believes he will be a basic rate tax payer when he needs to realise any investments. If he is looking to invest offshore, which of these options is MOST likely to be appropriate for him?
Select one:
a. Index fund.
b. Reporting fund.
c. Non-reporting fund.
d. Distributor fund.
```
c. Non-reporting fund.
SEE CHAPTER 6F6B
42
If a fund of funds is described as 'fettered', what restriction is imposed on it?
Select one:
a. Investment is restricted to only one asset class.
b. Investment is restricted to one geographical area.
c. It may only invest in funds run by the same management group.
d. It is subject to stricter oversight by the FCA.
c. It may only invest in funds run by the same management group.
SEE CHAPTER 6E1A
43
Edith is a client who is looking for a non-income producing investment. The options that will definitely meet her requirements include a[n]:
You must select ALL the correct options to gain the mark:
a. real estate investment trust.
b. unit trust with accumulation units.
c. zero dividend preference share.
d. offshore reporting fund.
e. guaranteed growth bond.
c. zero dividend preference share.
e. guaranteed growth bond.
SEE CHAPTER 6H15C/G7C
44
```
Yusuf has purchased an investment that gives him the right but no obligation to buy some shares at a fixed price at a set date in the future. He has purchased a[n]:
Select one:
a. American-style call option.
b. European-style call option.
c. European-style put option.
d. American-style put option.
```
b. European-style call option.
SEE CHAPTER 6O2B
45
```
Barton Investments' hedge fund always adopts a market-neutral strategy. This fund is referred to as a[n]:
Select one:
a. tactical trading fund.
b. relative value fund.
c. long/short fund.
d. event-driven fund.
```
b. relative value fund.
SEE CHAPTER 6P1D
46
```
John has recently become a widower. His wife, Huan, had a stocks and share ISA valued at £40,000 when she died. If John had previously invested £7,000 in his own ISA earlier in the tax year what, if any, additional ISA subscription is John permitted to make in the current tax year?
Select one:
a. Nil.
b. £13,000.
c. £60,000.
d. £53,000.
```
d. £53,000.
SEE CHAPTER 6L13
47
When he surrendered his single premium unitised with-profits bond, Ross received a lower value than he expected. The MOST likely reason is because:
Select one:
a. explicit charges were applied because he surrendered within 5 years of taking out the policy.
b. a percentage of the annual bonuses were deducted from the surrender value.
c. explicit charges were applied because he surrendered within 10 years of taking out the policy.
d. a market value reduction was applied.
d. a market value reduction was applied.
SEE CHAPTER 6H2B
48
Josh is a non-taxpayer who has invested into a real estate investment trust. The distributions he receives from his investment will comprise:
Select one:
a. two elements, both of which will be paid gross with no further tax to pay.
b. two elements, both of which will be paid net of 20% tax, which he can reclaim.
c. one element paid net of 20% tax that cannot be reclaimed and one element paid with no tax deducted.
d. one element paid net of 20% tax that he can reclaim and one element paid with no tax deducted.
d. one element paid net of 20% tax that he can reclaim and one element paid with no tax deducted.
SEE CHAPTER 6J4A
49
```
Sandra is a higher rate taxpayer earning £56,000 and her husband John is a basic rate taxpayer earning £22,000. They have always lived in the UK and have both cashed in offshore bonds making gains of £10,000 each. Assuming they have both already utilised their respective personal savings allowances, how much is their combined income tax liability in respect of these gains?
Select one:
a. £2,000.
b. £8,000.
c. £4,000.
d. £6,000.
```
d. £6,000.
SEE CHAPTER 6H20
50
Esme, a basic rate taxpayer, is selling a buy-to-let property for a substantial profit. What is the situation with regard to her reinvesting the gain immediately into an Enterprise Investment Scheme?
Select one:
a. She can reinvest any amount and receive capital gains tax deferral relief and her income tax relief is also unlimited.
b. She can reinvest any amount and receive capital gains tax deferral relief, but her income tax relief will be restricted by her personal tax liability.
c. She can reinvest up to £1,000,000 and receive capital gains tax deferral relief, but her income tax relief may be restricted by her personal tax liability.
d. She can reinvest any amount and receive capital gains tax deferral relief, but the investment will not impact her income tax liability at all.
b. She can reinvest any amount and receive capital gains tax deferral relief, but her income tax relief will be restricted by her personal tax liability.
SEE CHAPTER 6K1A
51
Faith Bank are the trustees of a unit trust. Their responsibilities include all of these, APART from:
Select one:
a. ensuring adherence to the terms of the trust deed.
b. arranging meetings of unitholders.
c. arranging the auditing of the trust.
d. selecting investments.
d. selecting investments.
SEE CHAPTER 6C1A
52
```
When more units or shares can be created on demand, this describes the features of:
Select one:
a. OEICs and Unit Trusts.
b. Unit Trusts and Investment Trusts.
c. OEICs only.
d. OEICs and Investment Trusts.
```
a. OEICs and Unit Trusts.
SEE CHAPTER 6B
53
Mehmet is interested in using exchange traded funds to enhance the diversification of his portfolio. He should be aware that:
Select one:
a. some have additional risk via synthetic replication and they all are likely to experience a degree of tracking error.
b. some have additional risk via synthetic replication, but this type will always avoid any tracking error.
c. they all use sampling rather than full replication and they all are likely to experience a degree of tracking error.
d. they all fully replicate the index they are tracking and this means they will avoid any tracking error.
a. some have additional risk via synthetic replication and they all are likely to experience a degree of tracking error.
SEE CHAPTER 6I1
54
```
Anna works for a small open ended investment company (OEIC). She is responsible for the preparation of accounts as well as ensuring the OEIC complies with its investor protection requirements. This means that Anna must be:
Select one:
a. one of the trustees.
b. the fund's independent depository.
c. the authorised corporate director.
d. the fund's internal depository.
```
c. the authorised corporate director.
SEE CHAPTER 6D2
55
```
A cereal manufacturer is about to place an order for wheat which will be delivered and priced in twelve months' time. What action could they take to agree the price at the time of placing the order?
Select one:
a. Buy a call option.
b. Sell a futures contract.
c. Sell a call option.
d. Buy a futures contract.
```
d. Buy a futures contract.
SEE CHAPTER 6O1A
56
Gordon, an additional rate taxpayer, has invested £150,000 in a Venture Capital Trust (VCT). As a result:
You must select ALL the correct options to gain the mark:
a. he will only maintain the full income tax relief if he keeps the shares for at least 3 years.
b. his shares will qualify for IHT business relief as long as he keeps them for at least 2 years.
c. he will receive £45,000 tax relief on his investment.
d. he will be able to offset any capital losses from the VCT as long as he keeps the shares for at least 5 years.
e. he will receive dividends from his VCT gross.
c. he will receive £45,000 tax relief on his investment.
e. he will receive dividends from his VCT gross.
SEE CHAPTER 6K2/3
57
Stefan pays £200 a year into his friendly society policy. Anita also has a friendly society policy into which she pays £20 per month. If Stefan and Anita continue to pay their premiums by the same frequency, how much can they increase their regular premiums by whilst retaining the tax exempt status of their policies?
Select one:
a. Stefan can increase by £70 and Anita can increase by £5.
b. Stefan can increase by £50 and Anita can increase by £10.
c. Neither of them can increase their premiums without losing their tax-free status.
d. Stefan is already paying the maximum but Anita can increase by £5.
a. Stefan can increase by £70 and Anita can increase by £5.
SEE CHAPTER 6H24
58
```
Juliet is 18 and invested £5,000 in a stocks and shares Individual Savings Account (ISA) on 5 June 2018. How much more can she invest in a cash based ISA on 8 August 2018?
Select one:
a. £20,000.
b. £35,000.
c. Nil.
d. £15,000.
```
d. £15,000.
SEE CHAPTER 6L4
59
One of the MAIN differences between Child Trust Funds (CTFs) and Junior Individual Savings Accounts (JISAs) is:
Select one:
a. the underlying investments available.
b. the subscription limits.
c. the options for the child when they reach the age of 16 or 18.
d. only CTFs have a stakeholder option.
d. only CTFs have a stakeholder option.
SEE CHAPTER 6L14
60
Terry is interested in a NYSE Liffe futures contract because they offer:
You must select ALL the correct options to gain the mark:
a. security of settlement since they use the London Clearing House (LCH).
b. the ability to keep an open position for some time.
c. exposure to an underlying asset in exchange for a margin payment.
d. the right but not the obligation to buy or sell an underlying asset.
a. security of settlement since they use the London Clearing House (LCH).
b. the ability to keep an open position for some time.
c. exposure to an underlying asset in exchange for a margin payment.
SEE CHAPTER 6O1
61
Four clients hold different investment products. Which one of them would MOST likely benefit from pound cost averaging?
Select one:
a. Olga, who is paying £300 a month into a unit trust, invested in a specialist growth fund.
b. Caitlin, who is paying £300 a month into a cash based ISA.
c. Whitney, who is paying £300 a month into a 10-year traditional with profits endowment policy.
d. Imani, who is paying £300 a month into a with profits whole of life policy.
a. Olga, who is paying £300 a month into a unit trust, invested in a specialist growth fund.
SEE CHAPTER 6H10B
62
```
What type of structured product, once issued, is listed on the London Stock Exchange?
Select one:
a. Precipice bond.
b. Exchange traded note.
c. Investment note.
d. Warrant.
```
c. Investment note.
SEE CHAPTER 6R2
63
```
A fund consists of 100% UK gilts and is valued at £500 million. To stay within the diversification rules, a single stock within the portfolio could be worth as much as:
Select one:
a. £50 million.
b. £100 million.
c. £150 million.
d. £25 million.
```
c. £150 million.
SEE CHAPTER 6B6
64
Mike died 20 months after investing into an enterprise investment scheme (EIS). Which explanation best describes the tax treatment of his EIS shares on his death?
Select one:
a. The income tax relief is not withdrawn and they will qualify for IHT business relief.
b. The income tax relief given is recovered from the estate but the shares will qualify for IHT business relief.
c. The income tax relief given is recovered from the estate and the shares will not qualify for IHT business relief.
d. The income tax relief is not withdrawn but they will not qualify for IHT business relief.
d. The income tax relief is not withdrawn but they will not qualify for IHT business relief.
SEE CHAPTER 6K1A
65
What ADDITIONAL reporting is a reporting fund obliged to make compared to a non-reporting fund?
Select one:
a. All income must be reported to the Financial Conduct Authority.
b. All income must be reported to HM Revenue and Customs.
c. Only interest bearing income must be reported to HM Revenue and Customs.
d. Only dividend income must be reported to HM Revenue and Customs.
b. All income must be reported to HM Revenue and Customs.
SEE CHAPTER 6F6A
66
Derek has invested in an offshore reporting fund. It is TRUE to say that:
Select one:
a. capital profits are potentially subject to capital gains tax.
b. income is always distributed net of 20% tax.
c. the fund must distribute all of its profits.
d. capital profits are potentially subject to income tax.
a. capital profits are potentially subject to capital gains tax.
SEE CHAPTER 6F6A
67
Gerald, an additional-rate taxpayer, plans to invest £200,000 in an Enterprise Investment Scheme (EIS), his first investment of this type. It is TRUE to say that:
You must select ALL the correct options to gain the mark:
a. capital gains tax in respect of another gain can be deferred by reinvesting the gain into an EIS company.
b. he can invest up to a further £800,000 in EIS investments by carrying back the investment up to three years.
c. the EIS shares will qualify for 100% business relief if they are held for at least two years.
d. a non-UK resident is eligible to invest in an EIS, but can only claim relief against any liability to UK Income Tax.
e. he will be able to carry back the full relief to the previous tax year provided he had a tax liability of at least £60,000 in the previous tax year.
a. capital gains tax in respect of another gain can be deferred by reinvesting the gain into an EIS company.
c. the EIS shares will qualify for 100% business relief if they are held for at least two years.
d. a non-UK resident is eligible to invest in an EIS, but can only claim relief against any liability to UK Income Tax.
e. he will be able to carry back the full relief to the previous tax year provided he had a tax liability of at least £60,000 in the previous tax year.
SEE CHAPTER 6K1
68
Fabio has made a profit on an equity futures contract and a loss on a gilt futures contract. He has already used his capital gains tax annual exemption for this year. As a result:
You must select ALL the correct options to gain the mark:
a. he must pay capital gains tax on the gain on the equity contract.
b. he must pay capital gains tax on the equity contract this year but he can carry the loss on the gilt contract forward indefinitely.
c. he cannot use the loss on the gilt contract since this is an exempt asset for individuals.
d. he can off set the loss on the gilt contract against some or all of the gain on the equity contract.
e. there is no capital gains tax to pay since futures contracts are chargeable to income tax.
a. he must pay capital gains tax on the gain on the equity contract.
c. he cannot use the loss on the gilt contract since this is an exempt asset for individuals.
SEE CHAPTER 6O4
69
```
A hedge fund which relies on arbitrage to produce returns is known as which type of fund?
Select one:
a. Relative value.
b. Event driven.
c. Trading strategies.
d. Long/short.
```
a. Relative value.
SEE CHAPTER 6P1D
70
Phil is surrendering his maximum investment plan and has received the proceeds tax free. This is because he surrendered the plan:
Select one:
a. after 5 years.
b. after 6 years with an original term of 8 years.
c. after 9 years with an original term of 12 years.
d. after 7 years with an original term of 11 years.
c. after 9 years with an original term of 12 years.
SEE CHAPTER 6H25B
71
In hedging his portfolio, an investment manager has a traded call option with a strike price of 155 pence which is now trading at 160 pence. It is TRUE to say that:
You must select ALL the correct options to gain the mark:
a. the duration to its expiry is not relevant to its value.
b. the investment manager must hold the option until it expires.
c. the investment manager can sell the option before it expires.
d. the greater the increase in its price, the greater the intrinsic value.
e. this gives the investment manager the right to sell the underlying asset.
c. the investment manager can sell the option before it expires.
d. the greater the increase in its price, the greater the intrinsic value.
SEE CHAPTER 6O2B
72
Ravinder is considering contributing to a Lifetime ISA (LISA). He should be aware that:
Select one:
a. he is only able to invest his contributions into cash.
b. the maximum Government bonus he can receive is £1,000 per year.
c. subscriptions into LISAs are in addition to the normal ISA subscription limits.
d. he can claim a Government bonus from both this and an existing Help to buy ISA.
b. the maximum Government bonus he can receive is £1,000 per year.
SEE CHAPTER 6L10
73
Kevin's life assurance policy will be deemed as a qualifying policy if:
You must select ALL the correct options to gain the mark:
a. Kevin is a UK resident in the year of encashment.
b. the premiums Kevin pays in any one year are not more than double those payable in any other year.
c. the premiums Kevin pays are at least £20 per month or £200 per annum.
d. the minimum level of life assurance cover is 100% of the total premiums payable.
e. its term is at least ten years.
b. the premiums Kevin pays in any one year are not more than double those payable in any other year.
e. its term is at least ten years.
SEE CHAPTER 6H25B
74
Peter has just invested in a Enterprise Investment Scheme. Assuming this is appropriate for his needs, this will be attractive to him because:
You must select ALL the correct options to gain the mark:
a. if he holds the shares for one year, they will be free of inheritance tax.
b. he can reduce his income tax liability by carrying back tax relief to the previous tax year.
c. he can shelter gains from the disposal of his former business.
d. it may produce tax-free dividends.
e. it will provide him with 30% income tax relief against his tax liability.
b. he can reduce his income tax liability by carrying back tax relief to the previous tax year.
c. he can shelter gains from the disposal of his former business.
e. it will provide him with 30% income tax relief against his tax liability.
SEE CHAPTER 6K1A
75
```
The White family comprises Mr and Mrs White and their two children aged 12 and 4. What is the MAXIMUM amount that can be paid per year by the family into friendly society policies if the premium is paid annually?
Select one:
a. £600.
b. £540.
c. £1,200.
d. £1,080.
```
d. £1,080.
SEE CHAPTER 6H24
76
Shane's unit trust is invested in a UK Equity Income fund. Virat's open ended investment company is invested in a UK Corporate Bond Fund. In respect of the income distributions they receive from their investments it is TRUE to say that:
Select one:
a. Shane's will be paid net of 10% and Virat's will be paid net of 20% tax.
b. Shane's will be paid with no tax deducted, and Virat's will be paid net of 20%.
c. both will be paid net of 20% tax.
d. both will be paid with no tax deducted.
d. both will be paid with no tax deducted.
SEE CHAPTER 6C10
77
```
Asif has taxable income of £38,000. In addition, he receives £4,000 dividend income and £5,000 savings income. How much additional income tax would he be liable to as a result of these dividends and savings income?
Select one:
a. £2,450.
b. £3,100.
c. £2,250.
d. £1,800.
```
a. £2,450.
SEE CHAPTER 6C10
78
When considering an investment into a split capital investment trust, factors that an investor SHOULD take into account include:
You must select ALL the correct options to gain the mark:
a. a negative hurdle rate indicates a negative outlook.
b. a negative hurdle rate indicates a positive outlook.
c. asset cover.
d. the redemption yield.
b. a negative hurdle rate indicates a positive outlook.
c. asset cover.
d. the redemption yield.
SEE CHAPTER 6G6B
79
```
SPS Limited has gross assets of £14.8 million. The maximum the company can raise from subscriptions to an Enterprise Investment Scheme (EIS) is:
Select one:
a. £1,200,000.
b. £1,000,000.
c. £0.
d. £200,000.
```
a. £1,200,000.
SEE CHAPTER 6K1B
80
Julian, a 69 year old retired teacher, has a non-qualifying endowment policy. Examples of a chargeable event would include:
You must select ALL the correct options to gain the mark:
a. surrendering the plan.
b. switching of funds within the plan.
c. assignment to his wife by way of a gift.
d. maturity of the plan.
e. his death.
a. surrendering the plan.
d. maturity of the plan.
e. his death.
SEE CHAPTER 6H25C
81
```
Matthew has an investment which allows him to select a quarterly guaranteed level of protection. This is LIKELY to be a:
Select one:
a. capital protected fund.
b. distribution bond.
c. protected equity bond.
d. capital protected annuity.
```
c. protected equity bond.
SEE CHAPTER 6H18
82
The regulatory framework and structure of an open-ended investment company means that:
You must select ALL the correct options to gain the mark:
a. the tax position applying to the investor is the same as for unit trusts.
b. the depository is responsible for the preparation of accounts.
c. shares issued to investors must be based on a single pricing structure.
d. the scheme operator must report to investors twice a year.
e. a dilution levy may be charged for large inflows or outflows from the fund.
a. the tax position applying to the investor is the same as for unit trusts.
d. the scheme operator must report to investors twice a year.
e. a dilution levy may be charged for large inflows or outflows from the fund.
SEE CHAPTER 6D
83
Which of Maria's clients is INELIGIBLE to invest in an Individual Savings Account?
Select one:
a. Karan, a retired Australian National permanently resident in the UK.
b. Bruce, a British army officer serving overseas.
c. Alan, a 17-year old UK resident.
d. Beryl, a retired British National resident in Spain.
d. Beryl, a retired British National resident in Spain.
SEE CHAPTER 6L2
84
```
Tyra is investing £120,000 in a retail non-index tracker UCITS fund. She is keen that the fund is diversified. You can reassure her that the MAXIMUM monetary holding she will have in the shares of one company is:
Select one:
a. £10,000.
b. £18,000.
c. £6,000.
d. £12,000.
```
d. £12,000.
SEE CHAPTER 6B6
85
Petra is considering investing in a property authorised investment fund (PAIF). She should be aware that:
You must select ALL the correct options to gain the mark:
a. property related income is distributed to investors gross as equity income.
b. property related income is exempt from taxation in the fund.
c. non-property income in the PAIF is subject to corporation tax at 20%.
d. she may receive three different types of distributions.
e. Open ended investment companies can qualify as PAIFs.
b. property related income is exempt from taxation in the fund.
c. non-property income in the PAIF is subject to corporation tax at 20%. Correct
Chapter reference 6J2A
d. she may receive three different types of distributions.
e. Open ended investment companies can qualify as PAIFs.
SEE CHAPTER 6J2A
86
Richard, a higher rate tax payer, is considering an offshore investment. When deciding between reporting and non-reporting funds he should be aware that:
You must select ALL the correct options to gain the mark:
a. non-reporting funds are usually roll-up funds.
b. for non-reporting funds, the highest level of tax that Richard would pay is 40%, if his tax status remains unchanged.
c. the annual capital gains tax (CGT) exemption cannot be used to mitigate any CGT tax liability in a reporting fund.
d. dividends paid from reporting funds constituted as companies are taxed as foreign dividends.
e. he will only be taxed on his share of the income within a reporting fund if an actual distribution is received.
a. non-reporting funds are usually roll-up funds.
b. for non-reporting funds, the highest level of tax that Richard would pay is 40%, if his tax status remains unchanged.
d. dividends paid from reporting funds constituted as companies are taxed as foreign dividends.
SEE CHAPTER 6F6
87
Peter has recently received a payment from the non-exempt element of his real estate investment trust (REIT). If this exceeds his remaining dividend allowance, as a higher rate taxpayer he:
Select one:
a. will have 40% income tax to pay on the dividend amount.
b. is not liable for income tax at all on the dividend amount.
c. will have 32.5% income tax to pay on the amount received.
d. is able to defer any income tax liability until he encashes the REIT.
c. will have 32.5% income tax to pay on the amount received.
SEE CHAPTER 6J4A
88
Which statement is true regarding intrinsic and time value?
Select one:
a. An out-of-the-money put option has no intrinsic value.
b. An in-the-money call option has time value but no intrinsic value.
c. An at-the-money put option has no time value.
d. An at-the-money call option has intrinsic value only.
a. An out-of-the-money put option has no intrinsic value.
SEE CHAPTER 6O2B
89
Yvonne has just received the first distribution under her UK Equity unit trust and has noted that she has also received an equalisation payment. She should be aware that this payment is:
Select one:
a. not subject to capital gains tax but may be liable to income tax.
b. potentially liable to income tax and capital gains tax.
c. deemed to be a return of capital and is not subject to income tax.
d. paid net of corporation tax and may be liable to capital gains tax.
c. deemed to be a return of capital and is not subject to income tax.
SEE CHAPTER 6C8
90
An investor considering investing in exchange traded notes should be aware that they are:
You must select ALL the correct options to gain the mark:
a. usually index trackers.
b. issued for a particular period of time.
c. high yielding, so useful for income seekers.
d. debt securities issued by banks.
e. not affected by changes in the credit rating of the issuer.
a. usually index trackers.
b. issued for a particular period of time.
d. debt securities issued by banks.
SEE CHAPTER 6I3
91
```
After investing £2,000 in a cash based Individual Savings Account (ISA) on 1 July 2018, what is the MAXIMUM that a 19-year old could invest in a stocks and shares based ISA during the 2018/19 tax year?
Select one:
a. £18,000.
b. £20,000.
c. £13,240.
d. £7,500.
```
a. £18,000.
SEE CHAPTER 6L4
92
```
Harry is an additional-rate taxpayer and receives a dividend distribution of £300 from his equity unit trust holding. What MAXIMUM further amount of tax will he need to pay on this distribution, assuming he has fully utilised his dividend allowance?
Select one:
a. £60.
b. £97.50.
c. £67.50.
d. £114.30.
```
d. £114.30.
SEE CHAPTER 6C10
93
Sergei has been advised to invest in an open-ended investment company. He should be aware that:
Select one:
a. these funds are closed-ended funds.
b. the assets are held for investors by the fund managers.
c. this type of investment will typically invest to solely produce a high income.
d. this will typically be invested in 50 or 100 different share holdings.
d. this will typically be invested in 50 or 100 different share holdings.
SEE CHAPTER 6B
94
Dolly has invested £50,000 into a Seed Enterprise Investment Scheme with the profits she made from the sale of a buy-to-let property in May 2018. She will therefore receive up to:
Select one:
a. 30% income tax relief and the entire gain will be exempt from CGT.
b. 50% income tax relief and £25,000 of the gain will be exempt from CGT.
c. 50% income tax relief and the entire gain will be exempt from CGT.
d. 30% income tax relief and £25,000 of the gain will be exempt from CGT.
b. 50% income tax relief and £25,000 of the gain will be exempt from CGT.
SEE CHAPTER 6K1D
95
Laura is advising her client in respect of the potential purchase of an endowment policy on the second-hand market. Her obligations to her client do NOT include:
Select one:
a. explaining the arrangements for assignment and safe keeping of the deed.
b. ensuring her client understands the tax position of a second-hand life policy.
c. giving her client a quotation of the life office's surrender value.
d. arranging for the life assured under the policy to be changed to her client.
d. arranging for the life assured under the policy to be changed to her client.
SEE CHAPTER 6H27A
96
```
Sarah and Henry are married and have three children, Ruth, aged 18, Lewis, aged 16 and James, aged 14. Ignoring Junior ISAs, what is the total amount the family can invest into cash based Individual Savings Accounts in the 2018/19 tax year?
Select one:
a. £100,000.
b. £60,000.
c. £80,000.
d. £40,000.
```
c. £80,000.
SEE CHAPTER 6L4
97
```
Sean has invested in an investment trust, partly due to the fact it was trading at a discount. He will suffer the GREATEST loss if the discount:
Select one:
a. narrows and the stock market falls.
b. widens and the stock market falls.
c. narrows and the stock market rises.
d. widens and the stock market rises.
```
b. widens and the stock market falls.
SEE CHAPTER 6G2C
98
```
Greg is an additional-rate taxpayer and receives a dividend distribution of £200 from his equity unit trust holding. What MAXIMUM further amount of tax will he need to pay on this distribution?
Select one:
a. £65.
b. £85.
c. £90.
d. £76.20.
```
d. £76.20.
SEE CHAPTER 6C10
99
```
Hugo, who was 17 in August 2018, wishes to maximise all of his possible allowances to Individual Savings Accounts. The MAXIMUM possible investment is:
Select one:
a. £20,000.
b. £4,260.
c. £24,260.
d. £40,000.
```
c. £24,260.
SEE CHAPTER 6L14A
100
Sheila owns shares in four different companies with a total value of £50,000. By switching these shares into an open-ended investment company (OEIC), she will be able to:
You must select ALL the correct options to gain the mark:
a. reduce the investment-specific risk.
b. gain exposure to a number of different asset classes.
c. have the comfort of receiving a guaranteed return.
d. select the shares for the OEIC.
e. avoid capital gains tax on the OEIC.
a. reduce the investment-specific risk. Correct
Correct, chapter reference 6B
b. gain exposure to a number of different asset classes.
SEE CHAPTER 6B
101
Megarich Investment Group has set up an unauthorised investment trust as an offshore property company. What is the MOST likely reason for them to do this?
Select one:
a. To enable its shares to be included in ISAs.
b. To avoid liability to corporation tax, opting to be liable for capital gains tax instead.
c. To enable it to invest all of its assets directly in property, rather than just through other property companies.
d. To avoid liability to income tax on rental income from UK property.
c. To enable it to invest all of its assets directly in property, rather than just through other property companies.
SEE CHAPTER 6J3
102
Which of these investors could possibly trade their life assurance product on the second-hand policy market?
You must select ALL the correct options to gain the mark:
a. Irene, who owns a distribution bond.
b. Laurence, who owns a unit-linked whole of life policy.
c. Gerry, who owns a with-profit endowment.
d. Anne, who owns a with-profit bond.
e. Jo, who owns a guaranteed bond.
c. Gerry, who owns a with-profit endowment.
d. Anne, who owns a with-profit bond.
e. Jo, who owns a guaranteed bond.
SEE CHAPTER 6H27
103
Tim owns a unitised with profit fund whereas Joe owns a unit linked fund. When comparing the two:
You must select ALL the correct options to gain the mark:
a. Tim's investment only may benefit from a terminal bonus.
b. Tim's is the only fund where the unit price is guaranteed not to fall.
c. only Joe could be invested in more speculative areas such as emerging markets.
d. market value reductions may be applied to either fund.
a. Tim's investment only may benefit from a terminal bonus. Correct
Correct, chapter reference 6H3
b. Tim's is the only fund where the unit price is guaranteed not to fall.
SEE CHAPTER 6H3
104
Sofia has a large gain from surrendering her onshore bond. As she is currently a higher rate taxpayer, she MAY be liable to pay:
Select one:
a. 45% income tax on the entire gain.
b. 32.5% income tax on the gain.
c. 28% CGT on the entire gain, after allowing for her annual exemption.
d. 20% or 25% in additional income tax on the gain.
d. 20% or 25% in additional income tax on the gain.
SEE CHAPTER 6H21
105
Sarah, a higher rate taxpayer, recently invested £40,000 into an onshore investment bond. In respect of this investment it is INCORRECT to say that:
Select one:
a. the tax deferred withdrawals can be taken indefinitely.
b. if she does not take any withdrawals for four years, then she could take out £8,000 without incurring an immediate income tax liability.
c. she can take a withdrawal of £2,000 a year without incurring an immediate income tax liability.
d. if she defers withdrawal of capital until she is a basic rate taxpayer, there will be no further income tax to pay.
a. the tax deferred withdrawals can be taken indefinitely.
SEE CHAPTER 6H16
106
Joseph, a fund manager is considering the use of derivatives in a number of scenarios. Which strategies could achieve his objective?
You must select ALL the correct options to gain the mark:
a. Write a put option in anticipation of a fall in the stock market.
b. Write a call option in anticipation of an imminent rise in the stock market.
c. Buy a put option to hedge against the market falling.
d. Sell FTSE 100 futures and buy a long gilt futures contract to execute a short term tactical asset allocation.
e. Buy FTSE 100 futures if he expects to receive an injection of cash but doesn’t want to miss the market.
c. Buy a put option to hedge against the market falling.
d. Sell FTSE 100 futures and buy a long gilt futures contract to execute a short term tactical asset allocation.
e. Buy FTSE 100 futures if he expects to receive an injection of cash but doesn’t want to miss the market.
SEE CHAPTER 6O3
107
Which of these investors would benefit from investing in an offshore bond?
You must select ALL the correct options to gain the mark:
a. Helen, who wishes to have an actively managed portfolio.
b. Joanna, who wishes to invest in fixed interest and nil yielding equities.
c. Sarah, who anticipates being a UK non-taxpayer on encashment.
d. James, who anticipates being a UK higher rate taxpayer on encashment.
e. Chardonnay, who wants to minimise her costs as much as possible.
a. Helen, who wishes to have an actively managed portfolio.
b. Joanna, who wishes to invest in fixed interest and nil yielding equities.
c. Sarah, who anticipates being a UK non-taxpayer on encashment.
SEE CHAPTER 6H28C
108
Helena and her friend, Roula, are aged 17 and 18 respectively and they both wish to invest the maximum in ISAs. It is TRUE to say that:
Select one:
a. Helena must invest at least £20,000 in cash ISAs, the rest can be in stocks and shares ISAs.
b. only Roula can invest in an Innovative Finance ISA.
c. only Helena can invest the maximum investment into a cash ISA.
d. Roula must report any stocks and shares ISAs on her tax return.
b. only Roula can invest in an Innovative Finance ISA.
SEE CHAPTER 6L
109
A higher rate taxpayer wishing to invest into a Venture Capital Trust (VCT) should be aware that:
You must select ALL the correct options to gain the mark:
a. any losses on VCT shares are not allowable losses for capital gains tax purposes.
b. tax relief is not withdrawn if the shares are disposed of to anyone within five years of purchase.
c. the rate of income tax relief for qualifying investments is 30%.
d. all gains arising on the disposal of VCT shares are fully chargeable to capital gains tax in the usual way.
e. dividends not exceeding £200,000 are exempt from any additional income tax.
a. any losses on VCT shares are not allowable losses for capital gains tax purposes.
c. the rate of income tax relief for qualifying investments is 30%.
e. dividends not exceeding £200,000 are exempt from any additional income tax.
SEE CHAPTER 6K2A
110
Abdul is 67 and a higher rate taxpayer. He is keen to invest £120,000 into a Venture Capital Trust (VCT) to generate income in his retirement rather than investing in pensions, because:
Select one:
a. VCTs offer more stable growth than that of personal pensions.
b. the charges are lower for VCTs.
c. there is no further income tax charged on income from the VCT.
d. VCTs offer higher income tax relief than pensions on the initial contribution.
c. there is no further income tax charged on income from the VCT.
SEE CHAPTER 6K2A
111
Paul intends to set up a regular premium endowment policy for investment purposes. In order that it is treated as a qualifying policy:
You must select ALL the correct options to gain the mark:
a. premiums payable in any one year must not be more than double those payable in any other year.
b. the minimum level of life assurance cover is 101% of the total premiums payable.
c. the term must be at least 10 years.
d. premiums must be payable monthly.
e. no premium should be more than one ninth of the total premiums payable over the term of the policy.
a. premiums payable in any one year must not be more than double those payable in any other year.
c. the term must be at least 10 years.
SEE CHAPTER 6H25B
112
Bob is a member of a group who is responsible for looking after the interests of shareholders in an investment trust. As a result, Bob must be:
Select one:
a. one of the trustees appointed by the independent board of directors.
b. one of the directors of the independent board of the public limited company.
c. one of the Authorised Corporate Directors established at outset.
d. one of the salaried fund managers appointed by the board of directors.
b. one of the directors of the independent board of the public limited company.
SEE CHAPTER 6G2
113
```
Gill invested £100,000 in a Venture Capital Trust on 1 February 2018. The EARLIEST she can sell the shares (to someone other than her spouse) in order to retain the income tax relief would be 1 February of what year?
Select one:
a. 2024.
b. 2021.
c. 2020.
d. 2023.
```
d. 2023.
SEE CHAPTER 6K2A
114
```
Mark has a UK unit trust within which four of the holdings are at the maximum 10% value permitted. How many further holdings must there be as a minimum?
Select one:
a. 11.
b. 12.
c. 46.
d. 16.
```
b. 12.
SEE CHAPTER 6B6
115
```
Vincent has taxable income of £80,000. He has realised a gain of £8,000 when encashing a non-reporting offshore fund. Henry has taxable income of £14,000. He has realised a gain of £6,000 when encashing a reporting offshore fund. Assuming they have both fully used their capital gains tax exemption in the 2018/19 tax year, what is their combined tax liability in respect of these gains?
Select one:
a. £4,400.
b. £3,800.
c. £2,800.
d. £5,600.
```
b. £3,800.
SEE CHAPTER 6F6
116
Clive, a basic rate taxpayer, is invested in a UK Corporate Bond unit trust. The distribution he receives is £150. When calculating his income tax position, the distribution is treated as being paid:
Select one:
a. gross but is subject to 7.5% tax via self-assessment.
b. gross but is subject to 20% tax via self-assessment.
c. gross and Clive will have no tax to pay if this falls within his personal savings allowance.
d. net of tax at 20%.
c. gross and Clive will have no tax to pay if this falls within his personal savings allowance.
SEE CHAPTER 6D6
117
```
If Sarah wants to invest in peer-to-peer lending within her ISA, she should opt for a[n]:
Select one:
a. derivative-based ISA.
b. self-select ISA.
c. investment trust ISA.
d. innovative finance ISA.
```
d. innovative finance ISA.
SEE CHAPTER 6L10
118
Mohammed has a with-profits bond. With regard to the annual bonuses added to his policy, he should be aware that they are:
Select one:
a. guaranteed, regardless of market conditions.
b. based on the overall share performance of the life company.
c. always reduced on the early surrender of the policy.
d. based on the performance of the underlying assets in the fund.
d. based on the performance of the underlying assets in the fund.
SEE CHAPTER 6H2A
119
Sarah, a non-taxpayer, made a gain of £23,000 on her unit trust holding. Karl, her husband and an additional rate taxpayer, made a gain of £19,000 on his unit trust holding. Assuming that neither of them have made any other gains or losses in the 2018/19 tax year, what is their combined capital gains tax liability?
Select one:
a. £2,710.
b. £1,460.
c. £2,590.
d. £2,950.
c. £2,590.
SEE CHAPTER 6C11
120
Victor is invested in a split capital investment trust. He has purchased zero dividend preference shares which:
You must select ALL the correct options to gain the mark:
a. will be taxed under capital gains and not income tax rules.
b. give Victor the right to purchase further zeros at a fixed price on a pre-determined date.
c. have a fixed redemption date.
d. are issued at an initial value that rises at a pre-determined compound annual growth rate.
e. are identical to capital shares.
a. will be taxed under capital gains and not income tax rules.
c. have a fixed redemption date.
d. are issued at an initial value that rises at a pre-determined compound annual growth rate.
SEE CHAPTER 6G7C
121
Oliver, an additional rate taxpayer, invested £250,000 into a Venture Capital Trust in July 2018. He will be able to:
Select one:
a. avoid income tax on some of the income he receives from the investment.
b. defer any capital gains tax payable on final encashment.
c. claim up to £125,000 as an income tax reducer.
d. be able to reclaim any corporation tax deducted on any income received.
a. avoid income tax on some of the income he receives from the investment.
SEE CHAPTER 6K2A
122
```
Ian is invested in exchange traded notes whereas Becky is invested in exchange traded funds. What risk does Ian's investment carry which is NOT relevant to Becky's investment?
Select one:
a. Interest rate risk.
b. Credit risk.
c. Event risk.
d. Liquidity risk.
```
b. Credit risk.
SEE CHAPTER 6I3
123
Paula is considering investing £14,000 into an exchange traded fund. She should be aware that:
Select one:
a. the whole investment can be utilised by her Individual Savings Account allowance.
b. rebalancing is rarely used when the assets within the index change.
c. any growth will be exempt from CGT.
d. she will only pay 0.25% stamp duty.
a. the whole investment can be utilised by her Individual Savings Account allowance.
SEE CHAPTER 6I1
124
Star Investment Trust has an annual management charge (AMC) of 1.2%, whereas Moon Investment Trust has an ongoing charges figure (OCF) of 1.4%. It is TRUE to say that:
Select one:
a. The AMC includes all charges including the initial charge.
b. The AMC is variable based on fund costings, whereas the OCF tends to be a fixed amount.
c. The OCF figure for Moon Investment Trust will include the AMC of that investment trust.
d. The terms AMC and OCF are interchangeable and so Star Investment Trust is more cost effective.
c. The OCF figure for Moon Investment Trust will include the AMC of that investment trust.
SEE CHAPTER 6G12B
125
Neil owns a unit-linked investment policy. The returns available to him will depend on the:
You must select ALL the correct options to gain the mark:
a. input of the company actuary.
b. claims experience of the insurance company.
c. investment performance of the funds to which they are linked.
d. exact days on which Neil effected the policy and cashed it in.
e. extent of any Market Reduction.
c. investment performance of the funds to which they are linked.
d. exact days on which Neil effected the policy and cashed it in.
SEE CHAPTER 6H10
126
Harry is a UK resident who is currently a basic rate taxpayer. He is interested in investing in a recently launched guaranteed income bond. It is TRUE to say that:
You must select ALL the correct options to gain the mark:
a. Harry will receive the income for a set period, usually up to five years.
b. it will produce an income but the amount may vary once the bond is set up.
c. he should search the market before investing as there are usually a wide range of similar products available and he should ensure he gets the best rate.
d. at the end of a fixed period, Harry's capital will be returned.
e. it will produce an income which is guaranteed at the outset.
a. Harry will receive the income for a set period, usually up to five years.
d. at the end of a fixed period, Harry's capital will be returned.
e. it will produce an income which is guaranteed at the outset.
SEE CHAPTER 6H15A
127
An investor considering an investment in a Venture Capital Trust (VCT) or Enterprise Investment Scheme (EIS) should be aware that:
You must select ALL the correct options to gain the mark:
a. income tax relief is available for investments in qualifying VCT shares at the investor's highest rate.
b. any losses on VCT shares are allowable losses for capital gains tax purposes.
c. knowing the income tax liability of the investor for the previous tax year can be significant for VCT investments.
d. only an EIS offers deferral of capital gains tax.
e. income tax relief is available for investments in a qualifying EIS at 30%.
d. only an EIS offers deferral of capital gains tax.
e. income tax relief is available for investments in a qualifying EIS at 30%.
SEE CHAPTER 6K
128
```
The manager of a unit trust subcontracts out the investment management to a separate fund management company, which in turn selects a third party to handle day-to-day administration. The responsibility for the compliance of the administrators lies with the:
Select one:
a. unit trust manager.
b. administrators.
c. trustees.
d. fund management company.
```
a. unit trust manager.
SEE CHAPTER 6C1B
129
```
David invested £20,000 into a single premium bond. In the first year he takes a partial surrender of £1,000 and in the second year he takes a partial surrender of £2,000. If he encashes the bond in the fifth year for £21,000, what will his chargeable gain be?
Select one:
a. £5,000.
b. £3,000.
c. £1,000.
d. £4,000.
```
b. £3,000.
SEE CHAPTER 6H25C
130
Jane, a non taxpayer, Mark, a basic rate taxpayer, Graham, a higher rate taxpayer and the trustees of a discretionary trust all have £10,000 holdings in a UK Gilts unit trust, and have all received a £500 distribution. Ignoring the personal savings allowance, they should be aware that:
You must select ALL the correct options to gain the mark:
a. the distribution is paid gross.
b. Graham is liable to pay an additional 32.5% tax.
c. Jane would be taxed at 7.5% at source and would be unable to reclaim this.
d. the trustees may be liable to pay income tax at 45%.
a. the distribution is paid gross.
d. the trustees may be liable to pay income tax at 45%
SEE CHAPTER 6C10
131
Andrew, an additional rate taxpayer, wishes to invest into an offshore fund and is trying to decide between a reporting fund and a non-reporting fund. In making this choice he should bear in mind that:
You must select ALL the correct options to gain the mark:
a. any gains for Andrew on a non-reporting fund would attract 45% income tax.
b. any capital gains achieved within a non-reporting fund are subject to income tax.
c. only non-reporting funds can pay dividends.
d. it is not possible to hold both reporting and non-reporting funds simultaneously.
e. the annual capital gains tax exemption is only available for reporting funds.
a. any gains for Andrew on a non-reporting fund would attract 45% income tax.
b. any capital gains achieved within a non-reporting fund are subject to income tax.
e. the annual capital gains tax exemption is only available for reporting funds.
SEE CHAPTER 6F6
132
Sadie wishes to invest in either a property unit trust or a property investment trust. In deciding between these two investments she should be aware that:
Select one:
a. only the investment trust can invest directly into property itself.
b. both can invest directly into property itself without restriction.
c. the unit trust can invest directly in property itself; the investment trust is restricted to only a small percentage in direct property.
d. neither can invest directly into property itself.
c. the unit trust can invest directly in property itself; the investment trust is restricted to only a small percentage in direct property.
SEE CHAPTER 6J2
133
```
Hans has a unit trust. The minimum number of shareholdings this is allowed to have is:
Select one:
a. 40.
b. 36.
c. 20.
d. 16.
```
d. 16.
SEE CHAPTER 6B6
134
If a UK equity fund manager believes there is going to be a sharp downturn in the market they can protect the value of the fund by:
Select one:
a. selling futures or selling put options.
b. buying futures or selling call options.
c. buying futures or buying call options.
d. selling futures or buying put options.
d. selling futures or buying put options.
SEE CHAPTER 6O3B
135
```
Elizabeth, George and Lucy have all invested into a Venture Capital Trust. Elizabeth, a basic rate taxpayer, invested £10,000; George, a higher rate taxpayer, invested £50,000; and Lucy, an additional rate taxpayer, invested £80,000. The TOTAL amount of income tax relief on these investments would be:
Select one:
a. £42,000.
b. £41,000.
c. £60,000.
d. £28,000.
```
a. £42,000.
SEE CHAPTER 6K2A
136
```
A 'December 230p put option' on FGH plc ordinary shares is trading at 13p per share. The present price of FGH plc ordinary shares is 250p. The time value and intrinsic value will be:
Select one:
a. 230p and 250p respectively.
b. 13p and 0p respectively.
c. 250p and 230p respectively.
d. 0p and 13p respectively.
```
b. 13p and 0p respectively.
SEE CHAPTER 6O2B
137
Kieran has been told that it is best if his investment bond is divided into a number of segments. This is because:
Select one:
a. it helps reduce the overall volatility of any investment Kieran may choose.
b. it is easier to re-balance the whole investment using the different segments.
c. the flexibility offered may help reduce the actual amount of income tax that may be due.
d. the flexibility offered may help reduce the actual amount of capital gains tax that may be due.
c. the flexibility offered may help reduce the actual amount of income tax that may be due.
SEE CHAPTER 6H26
138
Clare, a non taxpayer, wishes to invest directly into a real estate investment trust (REIT). She should be aware that:
You must select ALL the correct options to gain the mark:
a. she will be able to reclaim the 20% tax deducted from the tax-exempt element.
b. a REIT is an open-ended investment vehicle.
c. any dividend payment from the non-exempt element will be paid gross.
d. REITs must always be listed on the Alternative Investment Market.
e. any capital gain will be subject to capital gains tax.
a. she will be able to reclaim the 20% tax deducted from the tax-exempt element.
c. any dividend payment from the non-exempt element will be paid gross.
e. any capital gain will be subject to capital gains tax.
SEE CHAPTER 6J4A
139
Trent is looking to set up a regular savings plan with a friendly society. He should be aware that:
You must select ALL the correct options to gain the mark:
a. children under 18 can effect tax-exempt policies.
b. friendly societies are legally required to invest at least half their funds in safe securities.
c. the tax-exempt limit applies to each policy held by an individual.
d. the maximum annual premium for tax-exempt business is £270.
e. no income tax or capital gains tax are payable on the underlying funds.
a. children under 18 can effect tax-exempt policies.
d. the maximum annual premium for tax-exempt business is £270.
e. no income tax or capital gains tax are payable on the underlying funds.
SEE CHAPTER 6H24
140
Aida is considering buying a purchased life annuity (PLA) with her pension commencement lump sum. If she is a basic rate taxpayer, the advantage to Aida of doing so would be the:
Select one:
a. capital element of her PLA payments is paid free of tax if this falls within her personal savings allowance.
b. PLA payments are paid gross and she has no further tax to pay as basic rate tax is paid within the annuity fund.
c. capital element of her PLA payments is deemed to be a part return of her original capital and is therefore tax free.
d. PLA payments are paid tax free.
c. capital element of her PLA payments is deemed to be a part return of her original capital and is therefore tax free.
SEE CHAPTER 6N
141
Sade is invested in an offshore reporting fund. She should be aware that:
You must select ALL the correct options to gain the mark:
a. they are deemed to be exempt from inheritance tax for UK residents.
b. any capital gain on a sale is subject to normal capital gains tax rules.
c. there is no need for her to declare any income to HM Revenue and Customs.
d. any dividends the fund receives will usually be subject to non-reclaimable withholding tax.
e. her share of the income will be subject to tax, even if an actual distribution is not received.
b. any capital gain on a sale is subject to normal capital gains tax rules.
d. any dividends the fund receives will usually be subject to non-reclaimable withholding tax.
e. her share of the income will be subject to tax, even if an actual distribution is not received.
SEE CHAPTER 6F6A
142
Will is making changes to his existing investments. He will suffer a potential liability to capital gains tax because he is:
You must select ALL the correct options to gain the mark:
a. selling units in a unit trust and buying back within an Individual Savings Account.
b. switching sub-funds within an umbrella fund open ended investment company.
c. switching funds within a fund of funds unit trust.
d. selling shares via a share exchange into units of a unit trust.
e. transferring ownership of shares in an open ended investment company to his wife.
a. selling units in a unit trust and buying back within an Individual Savings Account.
b. switching sub-funds within an umbrella fund open ended investment company.
d. selling shares via a share exchange into units of a unit trust.
SEE CHAPTER 6C11
143
Emma has decided to invest in a structured product because she:
Select one:
a. may need to take an early withdrawal.
b. requires the capital or income to be guaranteed.
c. wants an underlying investment that is predominantly invested in equities.
d. wants a product that reflects the returns available from an index that tracks UK house prices.
b. requires the capital or income to be guaranteed.
SEE CHAPTER 6R1
144
```
In order to make a profit from an anticipated rise in interest rates, a speculator would:
Select one:
a. sell FTSE 100 futures.
b. sell Long Gilt futures.
c. buy Long Gilt futures.
d. buy FTSE 100 futures.
```
b. sell Long Gilt futures.
SEE CHAPTER 6O3D
145
Uri is planning to invest in a UK Gilt fund with a current value of £10m. According to the Undertakings for Collective Investment in Transferable Securities regulations, what diversification rules apply?
Select one:
a. The fund must be invested in at least 16 different issues of stock with no single stock holding exceeding 30%.
b. The fund must be invested in at least 16 different issues of stock with no single stock holding exceeding 35%.
c. The fund must be invested in at least 6 different issues of stock with no single stock holding exceeding 30%.
d. The fund must be invested in at least 6 different issues of stock with no single stock holding exceeding 35%.
c. The fund must be invested in at least 6 different issues of stock with no single stock holding exceeding 30%.
SEE CHAPTER 6B6
146
Guy is very pleased with his investment into a Venture Capital Trust because he:
Select one:
a. can claim loss relief on any losses he makes on his investment.
b. will be exempt from inheritance tax after two years.
c. will not pay any capital gains tax on any gains he makes on it.
d. can roll other capital gains into this investment and therefore defer paying the capital gains tax payable.
c. will not pay any capital gains tax on any gains he makes on it.
SEE CHAPTER 6K2A
147
Charlie has an investment bond currently valued at £240,000 and he is a basic rate taxpayer. You have informed him that a chargeable event would occur in the event of:
You must select ALL the correct options to gain the mark:
a. Charlie's death.
b. Charlie taking cumulative annual withdrawals below 5% of the original capital.
c. Charlie assigning the bond to his civil partner Derek, for no value.
d. Charlie fully surrendering the bond.
a. Charlie's death.
d. Charlie fully surrendering the bond.
SEE CHAPTER 6H25C
148
```
George has an income tax liability in the current tax year of £50,000 and £100,000 for the previous tax year. If he wanted to eliminate this income tax liability, what is the MINIMUM he must invest into an Enterprise Investment Scheme?
Select one:
a. £500,000.
b. £2,000,000.
c. £1,000,000.
d. £150,000.
```
a. £500,000.
SEE CHAPTER 6K1A
149
Petra is considering investing £150,000 into a Venture Capital Trust (VCT). She should be aware that:
You must select ALL the correct options to gain the mark:
a. income tax relief would be withdrawn if the shares are disposed of within five years.
b. income tax relief is available at her highest marginal rate.
c. she is within the annual investment limit.
d. any losses on VCT shares she makes are allowable losses for capital gains tax purposes.
e. she could defer capital gains tax on previous gains by reinvesting the gain into a VCT.
a. income tax relief would be withdrawn if the shares are disposed of within five years.
c. she is within the annual investment limit.
SEE CHAPTER 6K2A
150
Exchange traded notes (ETNs) differ from exchange traded funds (ETFs) in that ETNs:
Select one:
a. trade once a day at 11am.
b. have less credit risk than ETFs.
c. pay a higher income than ETFs.
d. do not actually contain a portfolio of investments.
d. do not actually contain a portfolio of investments.
SEE CHAPTER 6I3
151
Kevin and Barbara are married and have four children, Gina and Tracy, aged 17, Wayne, aged 16 and Daisy, aged 4. In connection with Individual Savings Accounts (ISAs):
You must select ALL the correct options to gain the mark:
a. Wayne can pay into a cash ISA.
b. Kevin can pay into a Lifetime ISA for Gina and Tracy.
c. Gina can pay into both a cash and a stocks and shares ISA.
d. Barbara can pay into a stocks and shares JISA for Daisy.
e. Kevin and Barbara can set up a joint stocks and shares ISA.
a. Wayne can pay into a cash ISA.
d. Barbara can pay into a stocks and shares JISA for Daisy.
SEE CHAPTER 6L
152
When a unit trust is operating on an 'offer basis' this would tend to indicate:
Select one:
a. warrants are being offered alongside standard units.
b. demand for units in the trust is high.
c. demand for units in the trust is low.
d. the fund is new.
b. demand for units in the trust is high.
SEE CHAPTER 6C22
