AF5 Flashcards

Question

FACTORS TO CONSIDER IF TO CONSOLIDATE INTO ASSURE LIFE PPP

Answer 1

``` COMPARISON OF CHARGES ANY PENALTIES ANY GUARANTEES OR LIFE COVER COMPARISON OF FUND CHOICES EASE OF ADMIN AND ONLINE ACCESS AVAILABILITY OF FLEXIBLE ACCESS WILL ASSURE LIFE ACCEPT TRANSFERS IN COST OF ADVICE TIME OUT OF MARKET ```

Answer 2

TAX FREE EXTRACTION OF PROFITS AS IS AN ALLOWABLE EXPENSE NOT A BENEFIT IN KIND SO NO INCOME TAX FOR SIMON AVOIDS NICS FOR SIMON AND EMPLOYER HIGHER AMOUNTS OF CARRY FORWARD CAN BE USED FOR TAX RELIEF AS NOT LIMITED BY NRE HIGHER INCOME IN RETIREMENT HIGHER TFC BETTER CHANCE OF RETIRING AT 60 TAX FREE GROWTH LARGER AMOUNT OUTSIDE OF IHT BEFORE 75 IN TRUST SO PROTECTED FROM BANKRUPTCY

Answer 3

WILL GET UP TO 45% TAX RELIEF ON PAYMENTS AS DIVIDEND INCOME WILL FALL BACK INTO BASIC RATE AT 7.5% NOT 32.5% ALL GROWTH FREE OF IT AND CGT HIGHER TFC HIGHER INCOME BETTER CHANCE OF RETIRING AT 60 MORE IN TRUST SO NO BANKRUPTCY MORE FUND OUTSIDE OF IHT IF DIES BEFORE 75

Answer 4

AGREEMENT WITH CO SHOULD BE IN WRITING GROSS SALARY REDUCED BY SPECIFIED AMOUNT TREATED AS AN EMPLOYER CONTRIBUTION AND REDUCES CORPORATION TAX SIMONS SALARY WILL REDUCE SO WILL INCOME TAX SIMON AND EMPLOYERS NICS REDUCED HIGHER PCLS AND IHT EXEMPT ASSETS

Answer 5

ILLIQUID AS UNQUOTED IF UNABLE TO WORK DUE TO ILLNESS UNLIKELY TO PROVIDE INCOME TAX BENEFITS SUCH AS ENTREPRENEURS RELIEF MAY REDUCE/REMOVED

Answer 6

Entrepreneurs Relief - Shares qualify for EP so CGT rate 10% on gain above CGT exemption Gets this as is Director of Co and held more than 5% of shares and voting rights for over 2 years Also entitled to at least 5% of profits available for distribution/disposal proceeds on sale of co No CGT payable if share held at death Business Relief - 100% available on death as shares in unlisted company and held for 2 years This will reduce IHT to nil

Answer 7

Allowed to invest all into VCT as below 200K maximum per tax yr Tax relief of 30% paid as a tax reducer in tax year shares are issued IT relief is capped in tax year shares are issued so unlikely he will pay sufficient IT to receive full benefit and cannot carry back IT relief lost if not held for 5 years All gains within VCT exempt of CGT immediately Tax Free income with no IT and as a higher rate taxpayer is valuable an doesn’t use all dividend allowance VCT’s are high risk and meets adventurous ATR Compare investment return/yield/growth on shares vs VCT Return on VCT is likely to be higher and more volatile than premium bonds Will he pay CGT on sale of shares Time out of market Have sufficient capacity for loss and can hold it for that term

Answer 8

Sale will be liable to capital gain and if over exemption of 12K will be taxed at 10% for Grace and 20% Simon Time out of market so could lose growth If buy back shares unit price may fall Could choose to invest elsewhere so Grace can match medium ATR and ethical preferences returns may not be as good as the OEIC elsewhere Future divs in ISA will be tax free which really helps Simon as higher rate taxpayer and will reduce tax liability and increase disposable income Compare growth on company shares vs OEIC UKL shares are certificated so would have to be sold Could fund ISA from Premium Bonds which do not match ATR and not matching inflation Any capital registered capital losses to bring forward or any other capital gains

Answer 9

Liquidity Risk Value of property not guaranteed / opinion May force sale of property reducing fund value High ongoing charges/transaction costs Income returns not guaranteed - systematic risk Only UK so no geographical diversification Taxation Risk Interest rate risk on any lending

Answer 10

Complicated Reliant on managers expertise and reruns may suffer is not performing well Can include performance fees/higher charges Does not guarantee positive return over time period Performance track recorded likely to be short and hard to compare Funds normally for drawdown and Grace is years away Returns unlikely to be high and subject to market risk and could do better elsewhere

Answer 11

As no tax paid within fund all chargeable gains subject to IT Can withdraw 5% of 55K for each year bond in force as tax deferred This is 13,750 Can assign into Graces name as BRT payer as Simon is HRT payer Will then save 20% IT on proceeds and can then top slice Assign to Harry & Emma so can encash them and income taxed against them Proceeds likely to be tax free as have personal allowances, starting rate band and savings allowance As funds to be used for living expenses will be exempt from IHT and not count as a gift Assignments are not chargeable events and will not trigger tax charge

Answer 12

Greater fund choice /choice of fund managers Access to different asset classes Automatic rebalancing available Ease of admin/online access/all in one place May offer reduced costs No CGT or time out of market Easy to use ISA & CGT allowances

Answer 13

Bank acc - no tax interest as within savings allowances Prem Bonds - winnings tax free Offshore Bond - no tax within fund /gross roll up - 5% tax deferred withdrawals not tax efficient over-longer term - chargeable event taxed at 40% Simon & 20% Grace - assignment to Grace will reduce tax payable / top slicing relief available - assignment to children would allow tax free withdrawals Simons shares - Dividends will use up all of Simons DA - Excess will be taxed at 32.5% OEICS - in excess of DA so Simons taxed at 32.5% on reinvested income & Grace at 7.5% - placing OEIC in Graces sole name would save 25% tax on half the holding (32.5% reduced to 7.5%) - can be used to fully fund both their ISAs this and future years - CGT payable on sale of OEICS and shares exceeding CGT exemption as 20% for Simon and 10% for Grace if within BRT ISA’s - Tax efficient especially for Simon as HRT - ISA wrapping will remove tax on future growth and income - Tax efficiency maintained on first death as can be transferred to spouse - No CGT

Answer 14

Can ensure wishes are know / avoid disputes Can choose who will act as attorneys and replacement attorneys if unable to act Can set up health and welfare LPA’s and provide guidance on how they wish to be cared for but cannot be used until lost mental capacity Can set up property and financial affairs LPA to allow attorney to help with finances and can be used before lose mental capacity if they wish to Will save cost and complexity and lengthy time through Court of Protection

Answer 15

Base cost established Deducted from sale value plus all reinvested income Deduct sale and purchase costs to provide capital gain Any same year losses deducted and then CGT exemption can be applied If still a gain and have registered previous years losses then these can be used If still gain the Simons will pay 20%as HRT Grace will any 10% within BRT band

Answer 16

``` Ensure ISA’s nd CGT exemptions are used Review pension funding Changes in tax/legislation Any additional funds to invest Any changes to will - 2nd death? Changes in income/expenditure Reconfirm risk profile and Capacity for loss Review investment performance against benchamarks Review protection needs Health Economy / politics Any new products ```

Answer 17

``` Change in risk profile End of tax year to use ISA/CGT Grace loss of job Simons business struggles Divorce/death Change to wills Inheritance/windfall Health issues Tax changes Adverse market conditions ```

Answer 18

Adjust cash flow and plans if any changes take account of tax status changes or salaries Review performance against benchmark and rebalance if needed Change of legislation or new products Review Uni costs and plans to fund Check still on track to retire at 60 review protection

Answer 19

Any changes to retirement date Any change to target income Asset allocation/fund performance/ethical views/ATR Simon increased employer pension contributions? Has Simon transferred old schemes to Assure Life Any change to expenditure/affordability etc Economic and market conditions changes in pension/tax legislation