Customer Needs and Factors That Affect Them Flashcards
(151 cards)
1
Q
What is the annual exempt amount?
A
The tax-free allowance on Capital Gains Tax (CGT) which is £12,300 and cannot be carried foward.
2
Q
CGT is payable by businesses and individuals on what?
A
Gains made on the disposal of certain assets.
3
Q
What are Chargeable Lifetime Transfers (CLTs)?
A
A gift placed in a trust where the trustees have discretion over income and capital.
4
Q
What is an emergency fund?
A
A lump sum to meet unexpected expenditure. Must be sustained to a sufficient amount over an individual’s lifetime.
5
Q
What is income tax?
A
Tax paid on most sources of income that an individual will receive in a tax year.
6
Q
What is monetary policy?
A
Monetary policy refers to the actions taken by a country’s central bank (e.g. HMRC) in order to control money supply and achieve macroeconomic goals that promote sustainable growth.
7
Q
What is the nil rate band?
A
The tax threshold for IHT. £325,000.
8
Q
How much in Inheritance Tax usually charged at?
A
40%
9
Q
What are three examples Potentially Exempt Transfers (PETs)?
A
- Gifts made into a bare trust (where the beneficiary has an absolute right to income and capital).
- Gifts made to another individual
- A gift placed into a trust for a vulnerable beneficiary.
10
Q
What is personal allowance?
A
£12,500. The tax threshold for income tax.
11
Q
In which two instances would personal allowance differ from the usual amount in the UK?
A
- When an individual is registered legally blind the personal allowance is increased.
- If an individual receives an income amount over £100k
12
Q
What happens to the personal allowance if an individual earns over £100k income?
A
For every £1 excess, £2 is lost from the personal allowance amount.
13
Q
When is IHT payable on a PET?
A
If the donor dies within seven years of making the payment or the value is greater than the nil rate band available on the PET.
14
Q
What is an unpredictable event?
A
An event that may or may not happen.
15
Q
How can an individual plan for an unpredictable event?
A
By paying premiums into an insurance policy that will never be paid out should the event never take place.
16
Q
Define Capital Gains Tax (CGT).
A
Tax payable by individuals and businesses on gains made on the disposal of certain assets.
17
Q
What is dividend allowance?
A
The tax threshold for dividends - £2,000.
18
Q
What is fiscal policy?
A
Fiscal policy refers to the use of government spending and tax policies to influence economic conditions.
19
Q
What is Inheritance Tax (IHT)?
A
Tax payable on an estate after death.
20
Q
How is IHT calculated?
A
By taking away the nil rate band from the value of the estate. IHT will be 40% of that amount.
21
Q
IHT is payable on what?
A
- The value of an individual’s assets on their death.
2. Transfers of assets through an individuals lifetime.
22
Q
What are National Insurance Contributions (NICs)?
A
Paid by most UK individuals alongside their income tax to the National Insurance fund.
23
Q
What is the National Insurance fund used for?
A
Exclusively to pay for contributory benefits.
24
Q
Name 5 examples of contributory benefits.
A
- New state pension
- Jobseekers allowance
- Maternity allowance
- Employment & support allowance
- Bereavement payment
25
What is the Pay As You Earn (PAYE) system?
The system which deducts income tax and NICs from an employed individuals gross earnings.
26
What is personal savings allowance?
A set amount within which savings interest can be received free of income tax. £1,000 for basic rate tax payers and £500 for higher-rate tax payers.
27
What are predicable events?
Events that will require a sum of money in the future.
28
What does the FCA define a vulnerable customer as?
'Someone who due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.'
29
What is Financial Planning?
The process of making provision for financial needs that may arise in the future.
30
Financial planning can be categorised into what two events?
Predictable and unpredictable events.
31
What are the three phases in the simplified personal financial lifecycle?
1. The vulnerable years.
2. The relaxed years.
3. The anxious years.
32
What are three things providers will consider when mapping solutions to customer needs and demands?
1. Industry developments.
2. Technological advancements.
3. Customer feedback.
33
What are some limitations of the lifecycle model?
Some lives and incomes do not fit the pattern and divorce and early death can affect financial needs.
34
What are the four drivers of customer vulnerability which should be considered by firms when offering financial services?
1. Health
2. Life events
3. Resilience
4. Capability
35
What are four examples of other taxes than income tax, CGT and IHT?
1. Stamp duty land tax (SDLT)
2. Stamp duty reserve tax (SDRT) and stamp duty
3. Value added tax (VAT)
4. Corporation tax
36
State the common financial planning priority for the 'Childhood' lifecycle stage.
Establish savings.
37
State the common financial planning priority for the 'Married with older children' lifecycle stage.
Protect the family and invest.
38
State the common financial planning priority for the 'Later life/receiving care' lifecycle stage.
Spend income and redistribute wealth.
39
State the implications of an individual's financial planning of being deemed to be a UK resident.
The individual may be liable to UK income tax on both their UK income and foreign income if they are deemed to be a UK resident. This usually occurs if the individual spends more than half the tax year in the UK.
40
Which form of Government policy uses interest rates to control increases in inflation?
Monetary policy - increasing interest rates will make it more attractive to save money as opposed to spending it. A reduction in consumer spending will lead to a fall in inflation.
41
Dimitri is an additional-rate taxpayer. What will his personal savings allowance be for the 2020/21 tax year?
As Dimitri is an additional-rate taxpayer, he is not entitled to the personal savings allowance.
42
How much personal savings allowance are basic-rate tax payers entitled to?
£1,000
43
How much personal savings allowance are higher-rate tax payers entitled to?
£500
44
What are five assets/investments that are exempt from CGT?
1. ISAs
2. UK gilts
3. Main residence
4. Gambling winnings
5. Chattels sold for less than £6,000
45
What is the main purpose of protection planning?
To provide a sum of money to those people who depend on you financially should you die or be unable to work through illness.
46
What is business contingency planning?
Planning to help prevent a person's business from collapsing in the event of their illness, retirement or death.
47
What is the purpose of retirement planning?
Help reduce a person's chance of ending their life in poverty or becoming a financial burden on their family in old age.
48
What is the purpose of life/death planning?
Knowing a substantial amount of tax won't be deducted when passing on wealth to the next generation.
49
What is the purpose of Her Majesty's Revenue and Customs (HMRC)?
To act as the UK's tax authority and be responsible for collecting all taxes and setting out tax legislation.
50
What are tax allowances?
Permitted amounts of capital or income which attract favourable tax rates and in some cases tax freedom which are often provided annually.
51
What are tax reliefs?
Permitted reductions in the amount of tax you pay.
52
What is net income?
The amount of income received once income tax has been deducted.
53
What is gross income?
Your income amount before tax is deducted.
54
What is taxable income?
Gross income minus the personal allowance.
55
What is the adjusted net income?
Total taxable income minus trading losses, pension contributions and gifts. This is only used to see if the individual's personal allowance should be reduced.
56
How are Employee Class 1 NICs paid?
Deducted from payroll through PAYE.
57
How are Employer Class 1 NICs paid?
To HMRC on a monthly basis.
58
What is the gain in CGT?
The amount calculated by deducting the cost of purchase/acquisition of an asset from the cost of disposal.
59
How is the chargeable gain amount calculated?
By deducting the annual CGT exemption and costs of acquisition/disposal from the gain.
60
What are certain business assets?
These are assets which are owned in part or full by a sole trader or business partner. They can also be defined as significant shareholding in a company (more than 5% shares and voting rights).
61
What is the purpose of entrepreneur's relief?
To provide those who dispose of certain business assets with a lifetime limit of £10mil within which CGT is applied at the lower rate of 10%. Anything in excess of this reverts to the standard rate of 10% or 20%.
62
What does the term asset mean in relation to estate planning and IHT?
This term incorporates everything owned by an individual, including cash held on deposit.
63
What is an individual's estate?
The value of an individual's assets less any debts/liabilities on death.
64
What is a will?
A legal document put in place by an individual during their lifetime which details their wishes with regards to their estate on death.
65
Who is the executor of the will?
Someone who is given prior authority by the deceased to handle their finances on death and distribute their estate.
66
Who is the administrator of an estate?
An individual, appointed by the courts, to handle the deceased finances on death and distribute the estate when no valid will exists.
67
What is the main purpose of protection planning?
To provide a sum of money to the people who depend on you financially should you die or be unable to work through illness.
68
Financial planning needs can be categorised into which two events?
Predictable and unpredictable.
69
In which stage in the personal financial lifecycle are an individual's financial planning priorities likely to be to preserve income and wealth?
Later life/receiving care.
70
Alfie pays income tax at the higher rate. How much personal savings allowance is he therefore entitled to?
£500
71
Ella has several sources of income. In terms of priority order, which of them will be taxed first?
A. Dividend income
B. Savings income from her building society account
C. Savings income from her NS&I savings account
D. Earned income
D. Earned income
72
What is the main purpose of the Later life/death stage of financial planning?
To help people pass their wealth onto the next generation safe in the knowledge that a substantial amount of tax won't be deducted in the process.
73
Which of the phases of the simplified financial lifecycle model is broadly aligned with the early years or marriage or a long-term relationship and the starting of a family?
The vulnerable years.
74
What is the term given to the process of using interest rates to control money supply in the UK?
Monetary policy.
75
What is the correct definition of taxable income?
Gross income less the personal allowance.
76
```
Which of the following is an example of income exempt from income tax?
A. Employment income
B. Interest on savings
C. Compensation awards
D. Rental income
```
C. Compensation awards
77
At which stage in the personal financial lifecycle are an individual's planning priorities likely to be building savings and protecting income?
Young married
78
Which stage of the simplified personal financial lifecycle is characterised by the following statement? 'Protection needs for children tend to reduce and pensions and savings needs can take priority'.
The relaxed years
79
Harry earns £50k a year. Assuming he has no other sources of income, at what rate(s) will he pay tax in the current tax year?
20% only
80
Sarah, aged 41, earns £600 a week. Calculate her National insurance liability.
£50.04
81
Name one example of a chargeable asset for CGT?
Second homes
82
What is the main purpose of protection planning?
To provide a sum of money to those people who depend on you financially should you die or become unable to work through illness.
83
What is the purpose of business contingency planning?
To help prevent a person's business from collapsing in the event of their illness, retirement or death.
84
What is the purpose of retirement planning?
To help reduce a person's chances of ending their life in poverty or being a burden on their family in old age.
85
What is the purpose of Later life/death planning?
To ensure people who intend to pass their wealth on to the next generation will do so safe in the knowledge that a substantial amount of tax won't be deducted in the process.
86
What are the SEVEN stages of the personal financial lifecycle?
1. Childhood
2. Young unmarried
3. Young married
4. Young married with children
5. Married with older children
6. Post family/pre-retirement
7. Retirement (the early years)
8. Later life/receiving care
87
In which stage of the simplified financial lifecycle is the highest priority protection against death and ill health?
The vulnerable years.
88
In which stage of the simplified financial lifecycle is the highest priority protecting existing savings and investments from inflation and investment risk?
The anxious years.
89
People reaching retirement fall into one of which THREE categories?
1. Low pension income with little capital.
2. Relatively low pension income plus some accumulated capital.
3. Sufficient pension income plus substantial capital.
90
What are the SIX considerations in an individual's lifecycle that that may affect ability to implement financial plans?
1. Affordability
2. Health
3. Term of dependency
4. Gender
5. Eligibility
6. Taxation
91
What does the personal financial lifecycle help us to do?
Anticipate the financial needs of the future and take action to provide for them well ahead of time.
92
What are the FOUR factors that could affect financial circumstances?
1. Employment status
2. UK Residence/Domicile
3. Entitlement to state benefits
4. Government policy
93
When is an individual deemed to be a UK resident?
If they spend more than half of the tax year in the UK.
94
When is an individual deemed to be UK domiciled?
If their permanent residence is in the UK.
95
What can be a key driver in the development of products and solutions?
Changes in tax legislation and regulatory rules.
96
What is an example of a low risk product?
Annuities
97
What is an example of a high risk product?
Investment trusts
98
What has the FCA identified as the FOUR key drivers of vulnerability in customers?
1. Health
2. Life events
3. Resilience
4. Capability
99
What is the role of Her Majesty's Revenue and Customs (HMRC)?
To act as the UKs tax authority and be responsible for collecting all the taxes and setting out tax legislation.
100
The most important factor of whether tax rates increase or decrease is the amount of money required to provide ongoing funding to what EIGHT services?
1. State benefits (including state pension).
2. Government operation and administration.
3. Defence and national security.
4. Law enforcement and public order.
5. Infrastructure and maintenance (e.g. roads or flood prevention.
6. Energy, waste and water management.
7. Health and education.
8. Public transport.
101
What are tax allowances?
Permitted amounts of capital or income which attract favourable tax rates and in some cases tax freedom.
102
What are tax reliefs?
Permitted reductions in the amount of tax you pay.
103
What are EIGHT sources of income liable to income tax?
1. Employment income
2. Self-employed profits
3. Most pension income
4. Interest on savings
5. Dividends from company shares
6. Certain state benefits
7. Rental income
8. Additional benefits paid from employer
104
What are SIX sources of income exempt from income tax?
1. Individual savings account (ISA) income.
2. National Savings Certificates.
3. National Savings & Investments Premium Bonds.
4. National lottery winnings.
5. Compensation awards.
6. Certain state benefits.
105
What is net income?
Amount of income received once income tax has been deducted.
106
What is gross income?
Amount of income received prior to income tax being deducted.
107
What is adjusted net income?
Total taxable income less trading losses, pension contributions and gifts.
108
What is the adjusted net income used to determine?
Whether an individual's personal allowance should be reduced.
109
What is the taxable income (after personal allowance) for a basic rate tax payer?
£0 to £37,500
110
What is the taxable income (after personal allowance) for a higher rate tax payer?
£37,501 to £150,000
111
What is the taxable income (after personal allowance) for an additional rate tax payer?
£150,001 and above
112
What is the tax rate for a basic rate tax payer?
20%
113
What is the tax rate for a higher rate tax payer?
40%
114
What is the tax rate for an additional rate tax payer?
45%
115
What is the tax rate on dividends for a basic rate tax payer?
7.5%
116
What is the tax rate on dividends for a higher rate tax payer?
32.5%
117
What is the tax rate on dividends for an additional rate tax payer?
38.1%
118
What is the priority order for multiple sources of income?
Non-savings income > Savings income > Dividend income
119
What is marriage allowance?
An additional allowance available to married couples/civil partners which enables a maximum of £1,250 personal allowance to be transferred between them.
120
Who are class 1 NICs paid by?
Employees and employers (at different rates).
121
Who are class 2 NICs paid by?
The self-employed.
122
What are class 3 NICs?
Voluntary contributions paid by individuals with a National Insurance shortfall.
123
Earnings between £183 and £962 per week are subject to what percentage NIC rate?
12%
124
Earnings in excess of £962 per week are subject to what percentage NIC rate?
2%
125
What is the National Insurance rate for employer class 1 NICs?
Single rate of 13.8%
126
How are employee class 1 NICs paid?
Deducted from payroll through PAYE.
127
How are employee class 1 NICs paid?
To HMRC on a monthly basis.
128
In reference to CGT, define disposal.
The selling, transferring or gifting away of an asset during your lifetime.
129
In reference to CGT, how is the gain calculated?
The difference between the disposal value and the original value at the time it was purchased/acquired.
130
In what two circumstances is CGT not paid on gifts?
1. Between spouses/civil partners.
| 2. To charity.
131
What are FIVE examples of chargeable assets?
1. Shares.
2. Certain business assets (e.g. shares, machinery and buildings).
3. Buy-to-let property
4. Second homes
5. Personal possessions (excluding cars)
132
What are FIVE examples of exempt assets from CGT charges?
1. ISAs
2. UK gilts
3. Main residence
4. Lottery/pools/betting winnings
5. Chattels sold for less than £6k
133
What is the chargeable gain?
The amount calculated by deducting the annual CGT exemption and costs of acquisition/disposal from the gain.
134
What is the rate of CGT applied to a chargeable gain for basic rate tax payers?
10%
135
What is the rate of CGT applied to a chargeable gain for higher rate tax payers and above?
20%
136
What are 'certain business assets'?
Assets which are owned in part or full by a sole trader or business partner. They can also be defined as significant shareholding in a company (more than 5% of the shares and voting rights).
137
What is entrepreneurs' relief?
Provides those who dispose of certain business assets with a lifetime limit of £10million within which CGT is applied at the lower rate of 10%.
138
What is meant by 'assets' in relation to estate planning and IHT?
Everything owned by an individual, including cash on deposit.
139
Define estate.
The value of all an individual's assets less any debts/liabilities on death.
140
On death, who is an individual's estate valued by?
The executor of the individual's will, or the administrator of the estate if no will exists.
141
Who is the executor of a will?
An individual who is given prior authority by the deceased to handle their finances on death and distribute the estate.
142
Who is the administrator of an estate?
An individual, appointed by the courts, to handle the deceased's finances on death and distribute the estate when no valid will exists.
143
How much is the nil rate band?
£325,000
144
If an individual leaves at least 10% of their estate to charity on death, what is the rate of IHT reduced to?
36%
145
What is the additional nil rate band for residential property?
£175,000
146
Who is the IHT liability on a PET payable by?
The recipient of the gift.
147
How is stamp duty land tax (SDLT) paid?
By the buyer of the property to HMRC within 30 days of the transaction date.
148
When is stamp duty reserve tax (SDRT) paid?
On the paperless purchase of shares at a rate of 0.5% (rounded to the nearest penny) and the non-paperless purchase of shares at a rate of 0.5% (rounded to the nearest £5).
149
At what rate is VAT usually charged at?
20%
150
When is Value added tax (VAT) paid?
On goods and services provided by a business, defined as 'taxable supplies'.
151
When is corporation tax paid?
On the profits of a limited company over an accounting period at a rate of 19%.
