3 - Laws and Legal Concepts relevant to financial advice

Question 1

What is a sole trader

Answer 1

Self-employed

Question 2

What are sole trader liable for

Answer 2

• Income Tax and CGT
• NIC Class 2 and 4 (twice a year)
• Secondary Class 1 NIC for employees

Question 3

What is a partnership?

Answer 3

Similar to Soletrader but liability reflects share of business

Same tax “traditional partnership”

Question 4

Who is liable for whos tax in a “traditional partnership”

Answer 4

Each to their own, they cannot be liable for each other tax

Question 5

LLP?

Answer 5

Partnership is a seperate legal person so the partners are not individually liable for debts of the LLP

Limited Liability partnership pay similar tax to traditional partnerships

Question 6

Limited Companies

Answer 6

A seperate legal entity which is registered on the Register of Companies

Question 7

Tax differences between limited companies and unincorporated businesses

Answer 7

Major tax differences between limited companies and unincorporated businesses (businesses which are not companies). Limited companies pay neither income tax nor CGT, however do pay corporation tax on all forms of profit made (including CGT).

Question 8

Requirements of PLC

Answer 8

1. Two directors, two shareholders and company secretary
2. Must state they are public and end in PLCs
3. Require extra certificate which is only eligible of PLC gained £50,000 in shares
4. company secretary must be member of professional body
5. Must lay accounts before general meetings
6. Include disclosure of shareholdings in company

Question 9

Enduring Powers of attorney

Answer 9

Allows power of attorney to continue in the event of incapacity

Question 10

When must enduring power of attorney have been established for it to qualify

Answer 10

Before October 2007 when the giver had full mental capacity

Question 11

Mental capacity definition

Answer 11

An individual lacks mental capacity if they are unable to make a decision for themselves due to an impairment or disturbance in the functioning of the mind or brain

Question 12

Which act introduced lasting power of attorney

Answer 12

Mental capacity act 2005

Question 13

What powers do LPA give

Answer 13

1. Health and Care decisions
2. Financial Decisions

Question 14

6 things for binding contract

Answer 14

1. Offer
2. Acceptance
3. Understand
4. Intention to create legally binding contract
5. Both parties can have power to contract
6. Consideration

Question 15

What additional things must there be for contract to be binding - life assurances

Answer 15

1. Good faith
2. Insurable interest

Question 16

Contracts on minors categories

Answer 16

1. Contracts which are binding
2. Contracts which are binding unless repudiated
3. Contracts which are not binding on minor

Question 17

In Life Insurance contract what constitutes an offer

Answer 17

Proposal form

Question 18

What constitutes acceptance in a life insurance contract

Answer 18

First premium payment

Question 19

What is Joint ownership

Answer 19

When two or more people buy a house (or other types of assets) together

Question 20

What is a joint tenancy

And relation to will

Answer 20

Joint Tenancy means neither individual can sell without the other’s agreement.

Each has an equal share of the property and when one dies, the survivor inherits the others share without probate being needed and regardless of provisions of any will.

Question 21

Tenancy in common

And Will

Answer 21

Each holds separate shares and can dispose of the shares as they wish

When they die, share goes to their estate not to the other joint owners, and is disposed according to their will or law of intestacy.

Question 22

Government schemes for housing

Answer 22

1. First Home scheme
2. Mortgage Guarantee scheme

Question 23

Alternative to bankruptcy

Answer 23

Individual voluntary arrangement

Question 24

What happens if an IVA is accepted?

Answer 24

IVA is added to individual insolvency registar and removed three months after it ends

Added to credit reference agency report for six years

Question 25

How much money is needed for petition for bankruptcy

Answer 25

£5000

Question 26

Who is responsible for realising and distributing an estate in individual bankruptcy

Answer 26

Trustee in Bankruptcy

Question 27

What order are debts paid in in bankruptcy

Answer 27

1. Costs of bankruptcy 2. Preferential debts 3. Floating charges 4. Unsecured creditors and other debts 5. Debt to bankrupt's spouse or civil partner

Question 28

How long does bankruptcy continue for under Enterprise Act 2002

Answer 28

12 month period

Question 29

Who is appointed to deal with corporate insolvency

Answer 29

Liquidator

Question 30

Alternatives to corporate insolvency (liquidation)

Answer 30

* Administration * Voluntary arrangements

Question 31

Three formalities to make a will

Answer 31

1. Writing 2. Signature 3. Attestation (2 witnesses)

Question 32

How do you revoke a will

Answer 32

* Write a new one * Destory it * Marriage * Divorce (part)

Question 33

Laws of Succession: Intestacy laws

Answer 33

* If you have a spouse but no issue (kids/grandkids) spouse is the sole beneficiary. * Spouse & issue - Spouse takes chattels plus statutory legacy of £322k plus half of balance. Remainder split amongst surviving issue on reaching 18 or marrying before then. * No spouse - All taken by issue. * No relatives - The crown or Duchy or Lancaster/Cornwall if resident of Lancaster/Cornwall.

Question 34

Laws of Succession: Personal Representatives

Answer 34

The executors and administrators are known as **personal representatives.** They are personally liable for the payment of all debts and taxes fro the estate, therefore need to ensure there are sufficient funds before making any distribution of the assets.

Question 35

What are the two types of Grant of Representations

Answer 35

1. Grant of Probate 2. Letters of Administration

Question 36

Grant of Probate how is it obtained

Answer 36

Executors of large estates must complete an HMRC account, showing all assets of deceased and any gifts made in the last seven years. Inheritance tax may be due if the total of the estate, plus all non-exempt gits in the previous seven years, exceeds the limit. Some of this tax if not all must be paid before Grant of Probate may be issued.

Question 37

Lists of trusts

Answer 37

* Express * Implied * Presumptive * Successive * Constructive * Resulting * Bare or absolute * Power of appointment * Interest in possession * Discretionary * Will * Statuory * Pension Scheme

Question 38

Main use of trusts

Answer 38

Stop IHT

Question 39

3 Certainties of trust

Answer 39

* Words must be on whole imperative * Subject matter must be certain * OBjects of trust, benefeciaries of trust must be certain

Question 40

Types of beneficaries interest

Answer 40

* Absolute * Life interest * Reversionary interest * Contingent interest

Question 41

How can a beneficiaries put an end to trusts?

Answer 41

Saunders vs Vautier (1841) - if all beneficiaries are known and reach age of majority and no possibility of further beneficiaries then direct trustees to hand over trust property entirely