3 - Laws and Legal Concepts relevant to financial advice Flashcards
What is a sole trader
Self-employed
What are sole trader liable for
- Income Tax and CGT
- NIC Class 2 and 4 (twice a year)
- Secondary Class 1 NIC for employees
What is a partnership?
Similar to Soletrader but liability reflects share of business
Same tax “traditional partnership”
Who is liable for whos tax in a “traditional partnership”
Each to their own, they cannot be liable for each other tax
LLP?
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
Limited Companies
A seperate legal entity which is registered on the Register of Companies
Tax differences between limited companies and unincorporated businesses
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).
Requirements of PLC
- Two directors, two shareholders and company secretary
- Must state they are public and end in PLCs
- Require extra certificate which is only eligible of PLC gained £50,000 in shares
- company secretary must be member of professional body
- Must lay accounts before general meetings
- Include disclosure of shareholdings in company
Enduring Powers of attorney
Allows power of attorney to continue in the event of incapacity
When must enduring power of attorney have been established for it to qualify
Before October 2007 when the giver had full mental capacity
Mental capacity definition
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
Which act introduced lasting power of attorney
Mental capacity act 2005
What powers do LPA give
- Health and Care decisions
- Financial Decisions
6 things for binding contract
- Offer
- Acceptance
- Understand
- Intention to create legally binding contract
- Both parties can have power to contract
- Consideration
What additional things must there be for contract to be binding - life assurances
- Good faith
- Insurable interest
Contracts on minors categories
- Contracts which are binding
- Contracts which are binding unless repudiated
- Contracts which are not binding on minor
In Life Insurance contract what constitutes an offer
Proposal form
What constitutes acceptance in a life insurance contract
First premium payment
What is Joint ownership
When two or more people buy a house (or other types of assets) together
What is a joint tenancy
And relation to will
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.
Tenancy in common
And Will
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.
Government schemes for housing
- First Home scheme
- Mortgage Guarantee scheme
Alternative to bankruptcy
Individual voluntary arrangement
What happens if an IVA is accepted?
IVA is added to individual insolvency registar and removed three months after it ends
Added to credit reference agency report for six years
How much money is needed for petition for bankruptcy
£5000
Who is responsible for realising and distributing an estate in individual bankruptcy
Trustee in Bankruptcy
What order are debts paid in in bankruptcy
- Costs of bankruptcy
- Preferential debts
- Floating charges
- Unsecured creditors and other debts
- Debt to bankrupt’s spouse or civil partner
How long does bankruptcy continue for under Enterprise Act 2002
12 month period
Who is appointed to deal with corporate insolvency
Liquidator
Alternatives to corporate insolvency (liquidation)
- Administration
- Voluntary arrangements
Three formalities to make a will
- Writing
- Signature
- Attestation (2 witnesses)
How do you revoke a will
- Write a new one
- Destory it
- Marriage
- Divorce (part)
Laws of Succession: Intestacy laws
- 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.
Laws of Succession: Personal Representatives
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.
What are the two types of Grant of Representations
- Grant of Probate
- Letters of Administration
Grant of Probate how is it obtained
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.
Lists of trusts
- Express
- Implied
- Presumptive
- Successive
- Constructive
- Resulting
- Bare or absolute
- Power of appointment
- Interest in possession
- Discretionary
- Will
- Statuory
- Pension Scheme
Main use of trusts
Stop IHT
3 Certainties of trust
- Words must be on whole imperative
- Subject matter must be certain
- OBjects of trust, benefeciaries of trust must be certain
Types of beneficaries interest
- Absolute
- Life interest
- Reversionary interest
- Contingent interest
How can a beneficiaries put an end to trusts?
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
