LP2 - 2023/24

Question 1

Vulnerable years meaning?

Answer 1

The vulnerable years: the early years of a long-term relationship:

Starting of a family, relatively low income additional child-related expenses

Protection against death and ill health is the highest priority.

Question 2

When are the relaxed years?

Answer 2

The relaxed years: when people enter their 40s, with increased income and good health. Their children are reaching financial independence and their own parents do not yet need assistance with day-to-day care needs. Protection needs for children tend to reduce and pensions and savings needs can take priority.

Question 3

When are the anxious years?

Answer 3

The anxious years: when people enter their 50s and beyond, disposable income is high but there is little time to make up gaps in pension provision; costs of protection cover and long- term care needs are a concern. Protecting existing savings and investments from inflation and investment risk becomes a priority.

Question 4

UK resident/Domicile meaning?

Answer 4

In simple terms, an individual is deemed to be a UK resident if they spend more than half of the tax year in the UK. If an individual is a UK resident, they may be liable to UK income tax on not only their UK income but also their foreign income.

An individual’s domicile is the country they consider to be their permanent home. If an individual is UK domiciled, then they may be liable to UK inheritance tax on their worldwide assets and not just those based in the UK.
A number of financial services products, particularly those which offer tax advantages, may not be available to non-UK residents or non-UK domiciled individuals.

Question 5

When would an individual be entitled to state benefits?

Answer 5

An individual may be entitled to State benefits at different stages of the lifecycle, ranging from sickness/illness benefit during their working years to the State Pension in retirement. An individual’s entitlement to such benefits will determine the level of financial planning required and, subsequently, the products that need to be used and to what extent.

Question 6

Employment status (Employed/Self Employed) reward package?

Answer 6

If an individual is employed, their reward package may feature protection benefits and access to a pension scheme. This could go a long way to providing for their needs in these areas. Therefore, any subsequent financial planning would address the gaps that still exist.

Self-employed individuals are fully responsible for providing for their own protection and retirement needs. This often creates a financial planning conflict between ongoing expenditure of the business and setting aside funds in protection and pension products.

Very little financial planning can be done to help individuals meet the kind of needs that unemployment can trigger. It may be hard for an unemployed person to provide the bare necessities of life, let alone continue payments for savings, pension plans and other insurances. Having emergency funds and protection in place can help to alleviate the impact of unemployment should it arise.

Question 7

Government Policy - Fiscal Policy

Answer 7

Fiscal policy is the process of balancing Government revenues (e.g. tax) with public spending to manage the economy. When public spending is too high in the UK economy, the Government will be under pressure to raise taxes to minimise, reduce or remove any deficits.

Question 8

Government Policy - Monetary Policy

Answer 8

Monetary policy is the process of using interest rates to control the money supply in the UK. When inflation (the increase in prices of goods and services) is deemed too high, the Government increases interest rates to encourage more saving and investment over spending.

Question 9

Purpose of protection planning

Answer 9

Protection planning: the main purpose of this is to provide a sum of money to those people who depend on you financially should you die or be unable to work through illness.

Question 10

Purpose of business contingency planning

Answer 10

Business contingency planning: helps to prevent a person’s business from collapsing in the event of their illness, retirement or death.

Question 11

Purpose of retirement planning

Answer 11

Retirement planning: saving for retirement helps to reduce a person’s chances of ending their life in poverty or being a burden on their family in old age.

Question 12

Purpose of later life/death planning

Answer 12

Later life/death planning: people who intend to pass their wealth on to the next generation will want to do so safe in the knowledge that a substantial amount of tax won’t be deducted in the process.

Question 13

Under the fifth ‘Core duty’ within the Code, members are required to: ‘treat people fairly regardless of (8)

Answer 13

Under the fifth ‘Core duty’ within the Code, members are required to: ‘treat people fairly regardless of:
age
disability
gender reassignment
marriage and civil partnership
pregnancy and maternity
race
religion and belief
sex and sexual orientations

Question 14

The FCA have provided ‘good practice’ guidance to firms on how they can ensure positive outcomes for vulnerable customers. The guidance recommends:

Answer 14

• financial products are clear and easy to understand.
• customers should be provided with flexibility and choice in the manner in which firm communicates with them (with a focus on communications being clear, easy to understand and relevant to the customers’ needs).
• customers are to be treated as individuals and firms should be prepared to offer a flexible and tailored response should customers experience a change in circumstances. This may include involving other family members to provide familiarity and reassurance.
• sufficiently trained customer facing/frontline staff that can identify vulnerability and know how to support customers in light of this (with a focus on listening skills).
• customers should be referred to specialist sources of help and advice where appropriate, thus ensuring that the customer is always dealing with the most appropriate and qualified individual to assist them.

Question 15

Purpose of Her Majesty’s Revenue and Customs (HMRC)
HMRC

Answer 15

Her Majesty’s Revenue and Customs (HMRC)
HMRC acts as the UK’s tax authority and is responsible for collecting all taxes and setting out tax legislation.

Question 16

The personal allowance amount is £12,570. However, the amount can vary depending on two factors, what are these?

Answer 16

A personal allowance is an amount of income that can be received free of income tax; the Government confirms the amount each year. The personal allowance can be used to offset any type of income, for example, earnings, savings interest or dividends. For the 2023/24 tax year, the personal allowance amount is £12,570. However, the amount can vary depending on two factors:
• An individual who is registered blind qualifies for an additional personal allowance.
• An individual with an adjusted net income of over £100,000 has their personal allowance reduced by £1 for every £2 of excess. Therefore, any individual with an adjusted net income in excess of £125,140 in the 2023/24 tax year will lose all their personal allowance for that tax year.

Question 17

Net income is…

Answer 17

Net income is the amount of income received once income tax has been deducted (for example, your net pay).

Question 18

Gross income is…

Answer 18

Gross income is the amount of income received prior to income tax being deducted (for example, your quoted salary).
Taxable income is gross income less the personal allowance.

Question 19

Adjusted net income is

Answer 19

Adjusted net income is total taxable income less trading losses, pension contributions and gifts. This is only used to determine whether an individual’s personal allowance should be reduced.

Question 20

Personal savings allowances for basic and high rate tax payers?

Answer 20

Every individual (with the exception of additional-rate taxpayers) is also entitled to a personal savings allowance. This is a set amount within which savings interest can be received free of income tax. The savings allowance in 2023/24 is £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers.

Question 21

The dividend allowance is?

Answer 21

The dividend allowance enables individuals to receive up to £1,000 in dividend income in 2023/24 free of income tax.

Question 22

Tax bands, tax rates & dividend rates?

Answer 22

£0 to £37,700 - 20% basic - 8.75%

£37,701 to £125,140 - 40% higher - 33.75%

£125,140 and above - 45% additional - 39.35%

Question 23

How many Scottish tax bands are there?

Answer 23

Individuals living in Scotland are subject to income tax bands set by the Scottish Government. There are a total of five income tax bands in Scotland (starter rate, basic rate, intermediate rate, higher rate and top rate), compared to the rest of the UK where three bands are operated. Specific detail of how the Scottish income tax system operates is outside of the scope of this exam unit.

Question 24

Pablo earns a salary of £65,000 in the 2023/24 tax year. This is his only source of income for the tax year and he qualifies for a full personal allowance of £12,570. What is his annual tax liability?

Answer 24

He therefore has taxable income for 2023/24 of: £65,000 – £12,570 = £52,430

Basic rate liability - The first £37,700 of this taxable income falls into the basic rate band so is taxed at 20%: £37,700 × 20% = £7,540 = tax payable at basic rate

Higher rate liability - The remaining £14,730 (£52,430 – £37,700) of taxable income falls into the higher rate band and so is taxed at 40%:
£14,730 × 40% = £5,892 = tax payable at higher rate

Total income tax liability - As a result, Pablo’s total income tax liability in 2023/24 is: £7,540 + £5,892 = £13,432

Question 25

The Government has indicated that it will change the basic rate tax of 20% to ? from 2024.

Answer 25

The Government has indicated that it will reduce the basic rate tax of 20% to 19% from 2024. Read more on the Spring Budget 2022 here: www.gov.uk/government/news/ chancellor-announces-tax-cuts-to-support-families-with-cost-of-living

Question 26

What’s the priority order for multiple sources of income?

Answer 26

1. Non-savings income (e.g. earnings, pension income, State benefits, self-employment profits) 2. Savings income (e.g. bank interest, taxable income from 3. Dividend income National Savings products) 3. Dividend income

Question 27

How is income tax on employment deducted? What system?

Answer 27

All non-savings income that an individual receives is classed as gross income and taxed accordingly. Individuals who are employed have the income tax due on their employment earnings deducted through the Pay As You Earn (PAYE) system.

Question 28

What is Pay As You Earn (PAYE)?

Answer 28

PAYE allows the employer to deduct income tax from the individual’s pay. The employer then pays this amount to HMRC each month to settle the liability. Employee National Insurance contributions are also deducted in this manner.

Question 29

How do self employed settle their income tax liability?

Answer 29

Self-employed individuals will settle their full income tax liability through self-assessment each year as they do not use the PAYE system.

Question 30

What is the 0% starting rate of income tax?

Answer 30

As an incentive for low earners to save, the Government has introduced a 0% starting rate band on the first £5,000 of taxable savings income an individual receives in the 2023/24 tax year. The starting rate is only available if individuals have taxable non-savings income (after the personal allowance) of less than £5,000.

Question 31

What is the Marriage allowance?

Answer 31

This is an additional allowance available to married couples/civil partners which enables a maximum of £1,260 of the 2023/24 personal allowance to be transferred between them. This can be used in situations where one spouse/civil partner is a low earner and is not using all of their personal allowance. It can lead to an additional income tax saving of £252 in the 2023/24 tax year.

Question 32

What is the Married couples’ allowance

Answer 32

This allowance is applied as a tax reducer, but is only available where one of the individuals in a marriage/civil partnership was born prior to 6 April 1935. Eligibility for this allowance could lead to an income tax saving of up to £1,037.50 in the 2023/24 tax year.

Question 33

How much tax relief are you entitled to on a pension?

Answer 33

Individuals may also be entitled to tax relief on their pension contributions. This can either reduce the individual’s taxable income (in the case of contributions to a workplace pension) or provide a 20% ‘top-up’ to contributions made to a personal pension arrangement. This type of relief is of particular relevance to the life and pensions sector as firms selling pension products are providing the facility for individuals to claim it. The relief makes saving through a pension particularly attractive, and higher rate or additional-rate taxpayers benefit from being able to claim further tax relief through their self-assessment.

Question 34

Marcy earns a salary of £38,000 in 2023/24. This is her only source of income for the tax year. Calculate her income tax liability for 2023/24.

Answer 34

The first £12,570 of Marcy’s income will be covered by her personal allowance and suffer no income tax liability.

Question 35

Name the State benefits which link eligibility to a claimant’s NIC record (there are 5)

Answer 35

• State Pension • Jobseeker’s Allowance • Employment and Support Allowance • Maternity Allowance • Bereavement Payment

Question 36

Detail classes of National Insurance contributions…

Answer 36

Class 1 Payable by employees and employers (at different rates) Class 2 Payable by the self-employed (flat rate) Class 3 Voluntary contributions payable by individuals with a National Insurance shortfall Class 4 Payable by the self-employed (driven by profits)

Question 37

Class 1 NICs are payable on earnings in excess of?

Answer 37

Employees pay Class 1 NICs on earnings in excess of £242 per week (2023/24). Individuals with a lower level of earnings than £242 per week may still be credited with a National Insurance record and remain entitled to State benefits.

Question 38

!!Assuming post 6 July 2022 thresholds!! What’s the employer % rate of NIC’s on earnings between £242 and £967? And over £967?

Answer 38

Earnings between £242 per week and £967 per week are subject to an NIC rate of 13.25%. Earnings in excess of £967 per week are subject to an NIC rate of 3.25%.

Question 39

Susan, aged 45, is employed and earns £1,000 per week in September 2023. What is her NIC liability

Answer 39

Susan pays no NICs on the first £242 of her weekly earnings. She pays 12% on earnings between £242 and £967 per week: (£967 – £242) × 12% = £725 × 12% = £87 per week Susan pays 2% on earnings in excess of £967 per week: (£1,000 – £967) × 2% = £33 × 2% = £0.66 per week Susan’s weekly Class 1 National Insurance liability is the sum of the two calculations: £87 + £0.66 = £87.66 per week These payments will ensure Susan remains entitled to State benefits, both during her working life and in retirement.

Question 40

What’s the flat rate of Employer NIC’s?

Answer 40

Unlike employee Class 1 NICs, the National Insurance rate for employer Class 1 NICs is a single rate of 13.88%. These contributions must be paid to HMRC on a monthly basis.

Question 41

Employer threshold for Class 1 NIC’s for over 21’s?

Answer 41

Employers also pay Class 1 NICs for employees aged 21 or over with earnings in excess of £175 per week (2023/24).

Question 42

Employer £ threshold for NIC’s under 21 and apprenticeships under 25?

Answer 42

This threshold is increased to £967 per week for employees who are under the age of 21 and apprentices under the age of 25.

Question 43

How are Employee NIC’s deducted?

Answer 43

Employee Class 1 NICs are deducted from payroll through PAYE.

Question 44

How are Employer NIC’s paid?

Answer 44

Employer Class 1 NICs are paid to HMRC on a monthly basis.

Question 45

Gavin, aged 52, is employed and earns £750 per week. Calculate his weekly National Insurance liability?

Answer 45

The first £242 per week of Gavin’s earnings is not liable to NICs. His weekly earnings between £242 per week and £750 per week are subject to Class 1 NICs at a rate of 13.25%: (£750 – £242) × 13.25% = £508 × 13.25% = £67.31 per week

Question 46

What is a CGT disposal, and what is a gain?

Answer 46

Capital gains tax (CGT) is payable by individuals and businesses on gains made on the disposal of certain assets. A disposal refers here to the selling, transferring or gifting away of an asset during your lifetime. In simple terms, the gain is calculated as the difference between the disposal value and the original value at the time it was purchased or acquired.

Question 47

When is a gain not a liable to CGT (2 answers)

Answer 47

CGT is not payable on transfers or gifts between spouses/civil partners. Instead, the gain is deferred to the receiving spouse/civil partner. It is also not payable on gifts to charity.

Question 48

List chargeable assets liable to CGT (5 answers)

Answer 48

Shares Certain business assets (e.g. shares, machinery and buildings) Buy-to-let property Second homes Personal possessions (excluding cars)

Question 49

List chargeable assets exempt from CGT (4 answers)

Answer 49

ISAs UK gilts Main residence Lottery/pools/betting winnings Chattels sold for less than £6,000

Question 50

What is the annual CGT allowance, and how many years carry forward applies to this?

Answer 50

LFor 2023/24, the annual exempt amount is £6,000. This must be used in the current tax year as it cannot be carried forward to use in future tax years.

Question 51

What costs can be subtracted from a Capital Gain?

Answer 51

Individuals and businesses can also reduce the gain on disposal by subtracting the costs and expenses incurred in originally acquiring the asset and disposing of it (broker costs, stamp duty, selling costs etc.). The rationale for this relief is that the charge should only be applied to the true growth in the asset. The amount of gain left after all available allowances, deductions and annual exempt amount have been used is referred to as the chargeable gain.

Question 52

What was the CGT in the 2022/23 tax year? What will the CGT be in 2024/25?

Answer 52

The CGT annual exempt amount was reduced from £12,300 in 2022/23 to £6,000 in 2023/24 and will be reduced further to £3,000 in 2024/25. It is estimated that halving the exemption to £6,000 will mean an additional 235,000 people will need to report a capital gain, and this measure could generate £480m in additional revenues in the first year.

Question 53

How do you work out the gain on a Capital Gain?

Answer 53

The gain is the amount calculated by deducting the cost of purchase/acquisition of an asset from the cost of its disposal.

Question 54

How do you work out the chargeable gain?

Answer 54

The chargeable gain is the amount calculated by deducting the annual CGT exemption and costs of acquisition/disposal from the gain.

Question 55

The rate of CGT that is applied to a chargeable gain is determined by the individual’s level of taxable income for the tax year in question. What are the amounts payable for basic and those in excess of the basic rate?

Answer 55

Chargeable gains within the individual’s basic rate band (up to £37,700) 10% Chargeable gains in excess of the basic rate band (over £37,700) 20%

Question 56

We were introduced to a priority order for applying tax rates to different types of income across different income bands. Where do Chargeable Gains sit in this priority order?

Answer 56

Chargeable gains made in a tax year are added to the total taxable income figure. We can therefore reproduce the priority order: non-savings income savings income dividend income chargeable capital gains.

Question 57

When should CGT liability be paid and to who?

Answer 57

Details of all calculations and available reliefs must be provided with the self-assessment. The CGT liability must be paid to HMRC by 31 January in the tax year following the tax year in which the gain was triggered. If the individual is disposing of property or land, any CGT liability must be paid to HMRC within 60 days of disposal.

Question 58

What happens to CGT losses? Does carry forward apply? How long for?

Answer 58

Individuals should also report any losses made on disposals of assets to HMRC. Such losses can be carried forward indefinitely and used to reduce future gains.

Question 59

Business Assets Disposal Relief limit? How long should the asset be held before disposal?

Answer 59

To qualify for Business Assets Disposal Relief, the asset must have been held for at least two years prior to disposal. Business Assets Disposal Relief provides those who dispose of certain business assets with a lifetime limit of £1,000,000 within which CGT is applied at the lower rate of 10%. Any chargeable gains on certain business assets in excess of the lifetime limit revert to the standard CGT rates of 10% and 20%.

Question 60

When is Inheritance tax (IHT) is payable?

Answer 60

Inheritance tax (IHT) is payable on: • the value of an individual’s assets on their death; and • transfers of assets throughout an individual’s lifetime.

Question 61

What’s the difference between Assets & Estate in IHT?

Answer 61

Assets: when used in relation to estate planning and inheritance tax, this term incorporates everything owned by an individual, including cash held on deposit. Estate: the value of all an individual’s assets less any debts/liabilities on death.

Question 62

How does residency / domicile effect IHT

Answer 62

LAn individual’s domicile is the country they consider to be their permanent home. If an individual is UK domiciled, then they may be liable to UK inheritance tax on their worldwide assets and not just those based in the UK.

Question 63

What are the key exemptions from IHT?

Answer 63

The key exemptions from IHT are: • transfers between spouses/civil partners during their lifetime or on death; and • gifts made to registered charities during life or on death. We will cover the main IHT allowances and reliefs as we progress through this section.

Question 64

What is a will? What does the executor do? What does the administrator do?

Answer 64

A will is a legal document put in place by an individual during their lifetime which details their wishes with regard to their estate on death. The executor of the will is the individual(s) who is given prior authority by the deceased to handle their finances on death and distribute the estate. The administrator of an estate is an individual, appointed by the courts, to handle the deceased’s finances on death and distribute the estate when no valid will exists.

Question 65

What is the nill rate band for IHT purposes?

Answer 65

Individuals are entitled to a nil rate band of £325,000, which is not liable to IHT on death. An unused nil rate band is transferable between spouses/civil partners, as a percentage, on second death.

Question 66

What is the IHT charge payable? In what instances is this charge reduced?

Answer 66

Any excess over the available nil rate band is chargeable to IHT of 40% and payable by the executor or administrator. The IHT liability often reduces the amount that can be paid to the nominated beneficiaries. The rate of IHT is reduced to 36% if the individual leaves at least 10% of their estate to charity on death.

Question 67

Raheem recently died with an estate totalling £500,000. The sole beneficiary of his estate is his son, Jamal.

Answer 67

IHT at a rate of 40% is payable by the executors of his will on the value of his estate in excess of the nil rate band of £325,000. (£500,000 – £325,000) × 40% = £175,000 × 40% = £70,000 = IHT payable Jamal therefore inherits £430,000 (£500,000 – £70,000).

Question 68

When does IHT need to be paid?

Answer 68

IHT liabilities must be paid to HMRC within six months of the end of the month of death. For example, if the individual dies on 15 April, any IHT liabilities must be settled by 30 October. Residence nil rate band.

Question 69

What is the additional nil rate band? What’s the combined standard nil rate and additional nil rate?

Answer 69

An additional nil rate band is available on death to offset against the value of residential property transferred to a direct descendant (i.e. children and grandchildren). The additional nil rate band for residential property is £175,000 for 2023/24. Similar to the standard nil rate band, any unused percentage of the residential property nil rate band can be transferred to a surviving spouse or civil partner on death. When combined with the standard nil rate band, an individual could potentially leave up to £1m on death during 2023/24 without having an IHT liability.

Question 70

Lifetime gifts are broken down into two categories, these are?

Answer 70

Potentially exempt transfers (PETs): includes gifts made into a bare trust (where the beneficiary has an absolute right to income and capital) or gifts made to another individual. Another example of a PET is a gift placed in a trust for a vulnerable beneficiary. Chargeable lifetime transfers (CLTs): a gift placed in trusts where the trustees have discretion over income and capital.

Question 71

When is IHT payable on a PET?

Answer 71

IHT is only payable on a PET if the donor (the individual making the gift) dies within seven years of making it and the value of the gift is greater than the available nil rate band on a PET. The IHT liability on a PET is payable by the recipient of the gift.

Question 72

When is there an immediate IHT liability on a CLT?

Answer 72

There is an immediate IHT liability on a CLT if the nil rate band is breached at the time the gift is made. In these situations, a lower IHT rate of 20% is applied and the tax is typically paid by the trust. A further IHT liability may occur if the donor dies within seven years of making the gift, but this can be reduced by any IHT liability paid at the time the gift was made.

Question 73

Explain exemptions, allowances and reliefs on IHT on gifts to registered charities and political parties

Answer 73

Gifts to registered charities and political parties are exempt from IHT during life and on death. In addition, where an individual leaves at least 10% of their estate to registered charities on death, the rate of IHT paid on their estate reduces to 36%.

Question 74

What is the annual exemption on IHT?

Answer 74

Each individual has an annual exemption of £3,000 per tax year. Any unused annual exemption can be carried forward for a maximum of one tax year.

Question 75

Regular gifts from income (IHT)?

Answer 75

The criteria for gifts to be classed as expenditure from regular income include: • the gift is part of the transferor's normal expenditure; • the gift was made out of income; and • the person making the gift can still maintain their usual standard of living.

Question 76

Business relief from IHT? It’s a percentage..

Answer 76

This relief reduces the value of a business or its assets during life or on death. Subject to ownership criteria and the business asset in question, relief is available at 50% or 100%.

Question 77

Most financial products form part of the estate on death, what is the exemption to the rule?

Answer 77

The majority of financial products available form part of the estate on death and so their values can trigger an IHT liability. The life and pensions sector is therefore looking at ways of providing products which can be held in a trust and passed outside of the estate on death. The exception to the rule is pensions, as these products can pass to a nominated beneficiary free of IHT.

Question 78

Dominic died in May 2023 with an estate valued at £750,000. As per the instructions in his will, the estate is to be split equally between his wife, Irene, and his son, Gregor. Calculate the IHT liability on his estate.

Answer 78

Both Irene and Gregor receive 50% of Dominic’s estate, and so each receives £375,000 (£750,000 ÷ 2). Irene’s share is exempt from IHT, as she is Dominic’s spouse. IHT is payable on the amount left to Gregor at a rate of 40%. First, it will be tested against Dominic’s nil rate band of £325,000: Excess over nil rate band = £375,000 – £325,000 = £50,000 IHT charge = £50,000 × 40% = £20,000

Question 79

What is Stamp duty land tax (SDLT)? Who pays it and when is die to be paid?

Answer 79

Payable when property (residential and non- residential) is purchased or transferred in the UK. Its tiered rates are driven by the purchase price/ transfer value of the property. The buyer is responsible for paying any SDLT due to HMRC within 14 days of the transaction date.

Question 80

Stamp duty reserve tax (SDRT) and stamp duty? Who pays it and when is die to be paid?

Answer 80

SDRT is payable on the paperless purchase of shares at a rate of 0.5%. This covers the costs of re-registering (rounded to the nearest penny). Stamp duty is payable on non-paperless transactions at a rate of 0.5% (rounded to the nearest £5). The new owner of the shares.

Question 81

What is Value added tax (VAT)? Who pays it and when?

Answer 81

Payable on the goods and services provided by a business, defined as ‘taxable supplies’. Most goods and services are charged at the standard rate of 20%. The recipients of the goods and services to the business. It is then passed on by the business to HMRC on a quarterly basis.

Question 82

What is Corporation tax? Who pays it and when?

Answer 82

Payable on the profits of a limited company over an accounting period at a rate of 19%, 26.5% or 25% depending on the profits made by the business. The company, by the required deadline. This is usually nine months and one day after the end of the accounting period.

Question 83

Financial planning needs can be categorised into the following events:

Answer 83

Financial planning is the process of making provision for financial needs that may arise in the future. – Predictable events: require a sum of money at some point in the future. – Unpredictable events: may occur at some point in the future or not at all.

Question 84

The personal financial life cycle can be divided into the following 8 stages:

Answer 84

– Childhood. – Young unmarried. – Young married. – Young married with children. – Married with older children. – Post-family/pre-retirement. – Retirement (early years: ages 55 to 70). – Later life/receiving care (ages 70+).

Question 85

In reality, there are likely to be certain individual considerations which impact on an individual’s ability to implement their financial plans. These include…

Answer 85

Affordability Health Term of dependency Gender

Question 86

Other factors which may affect an individual’s financial circumstances are..

Answer 86

Employment status, UK resident or are UK domiciled Entitlement to State benefits Government policy.

Question 87

When mapping solutions to customer needs and demands, providers consider…

Answer 87

Industry developments Technological advancements Customer feedback

Question 88

Name two circumstances (outwith the pattern) that affects financial needs and circumstances

Answer 88

The lifecycle model does have its limitations. For example, some lives and incomes do not fit the pattern, and divorce and early death can affect financial needs and priorities.

Question 89

What are the four main vulnerability drivers?

Answer 89

Health, Life events, Resilience Capability are the four drivers of customer vulnerability which should be considered by firms when offering financial services to customers, to ensure positive outcomes

Question 90

National Insurance is paid by who? And to ensure eligibility to what?

Answer 90

National Insurance is paid by employees, the self-employed and employers to ensure eligibility to State benefits, including the new State Pension.

Question 91

Capital gains tax (CGT) is payable by who? And on what?

Answer 91

Capital gains tax (CGT) is payable by individuals and businesses on gains made on the disposal of certain assets.

Question 92

Inheritance tax (IHT) is payable on what and when?

Answer 92

Inheritance tax (IHT) is payable on the value of an individual’s assets on their death and transfers of assets throughout an individual’s lifetime.

Question 93

Other taxes excluding Income tax, CGT, IHT are?

Answer 93

Other taxes include: – stamp duty land tax (SDLT) – stamp duty reserve tax and stamp duty (SDRT) – value added tax (VAT) – corporation tax

Question 94

Explain the purpose of an emergency fund?

Answer 94

The purpose of an emergency fund is to provide a lump sum to meet urgent or unexpected expenditure, such as car repairs or money to live on in the event of a few weeks' unemployment.

Question 95

State the common financial planning priorities for the following lifecycle stages: a. Childhood. b. Family with older children. c. Later life/receiving care.

Answer 95

These lifecycle stages are affected by the following common financial planning priorities: a. Childhood – establish savings. b. Family with older children – protect the family and invest. c. Later life/receiving care – spend income and redistribute wealth.

Question 96

State the implications for an individual's financial planning of being deemed to be a UK resident.

Answer 96

The individual may be liable to UK income tax on both their UK income and foreign income if they are deemed to be UK resident. This usually occurs if the individual spends more than half the tax year in the UK.

Question 97

Which form of Government policy uses interest rates to control increases in inflation?

Answer 97

Monetary policy – in simple terms, 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.

Question 98

Kiera has adjusted net income of £110,000 in the 2023/24 tax year. What will be the reduction, if any, in her personal allowance for the tax year?

Answer 98

For every £2 of excess adjusted net income over £100,000, Kiera's personal allowance will be reduced by £1. £110,000 – £100,000 = £10,000 excess £10,000 ÷ £2 = £5,000 Kiera's personal allowance will be reduced by £5,000 in 2023/24.

Question 99

Dimitri is an additional-rate taxpayer. What will his personal savings allowance be for the 2023/24 tax year?

Answer 99

As Dimitri is an additional-rate taxpayer, he is not entitled to the personal savings allowance. Basic-rate taxpayers are entitled to a personal savings allowance of £1,000, while higher-rate taxpayers are entitled to £500.

Question 100

Which of the following is applied as an income tax reducer for eligible individuals? a. Marriage allowance. b. Married couples' allowance. c. Tax relief on personal pension contributions. d. Tax relief on workplace pension contributions.

Answer 100

Married couples' allowance.

Question 101

List 5 assets/investments which are exempt from capital gains tax…

Answer 101

You could have chosen three of the following: • ISAs. • UK gilts. • Main residence. • Lottery/pools/betting winnings. • Chattels sold for less than £6,000.