Bartek & Zofia Case Study Flashcards
Income Protection Insurance :
Pays long term income in event of accident, sickness or unemployment
Pays between 50-75% of income
Income starts are completing of deferred period
Policy cannot be cancelled by provider regardless of how many times individual makes a claim
CIC:
Pays tax free lump sum if policy holder suffers from one of several specified illnesses
What is the main issue that Bartek’s DIS & PMI is sponsored by his employer?
If he leaves employment, the insurance may cease
Bartek has comprehensive employer sponsored PMI. What is PMI?
Is PMI treated as a Benefit In Kind for Bartek?
Provides financial support allows an individual to claim the costs of the Private Medical Treatment
3 types:
Basic
Mid range
Comprehensive (ie, more options of hospitals, more cover etc)
Premiums are treated as a BIK, meaning Bartek’s taxable income is increased
Benefits are tax free and paid directly to the care provider
Property funds:
Real estate Investment Trusts (REITS)
Property Authorised Investment Funds (PAIFs)
Property Authorised Investment Funds (PAIFs) = An OEIC that invests in property
Pays property income (paid net of 20% income tax)
Interest income paid gross
Dividends paid gross
Can be held within an ISA or Pension
REITs =
What is Child benefit and how much does it pay?
What is the high Income Child Benefit tax charges
Child benefit:
Paid if you have a child under 16, or under 20 if they stay in approved education or training
Eldest or only child = £25.60 weekly
Additional children = £16.95 per child weekly
The max for a single child is they can get is £1,331.20 ( £25.60 x 52 )
High Income Child Benefit tax charges =
Charged on highest earner
For every £200 of income over £60k, 1% is lost of child benefit is lost. At £80k, it is lost all together. This includes BIK’s
Bartek’s basic salary is 60k but with bonuses and BIK (from PMI) it will be higher and could result in the High Income Child Benefit Tax Charges
Contributing to pension can help reduce this
Why is it important for Kathy to make sure she has a nomination in place for her pension following Alan’s death?
It is important that the member (Kathy) ensures she has completed a nomination form for her pension. This details who she wishes her pension benefits to be payable to upon her death
Why? What happens if Kathy dies without a valid nomination form:
If there is a surviving dependant and no nomination.
Scheme administrator must choose a dependant to receive reg income. ONLY the dependant can receive a regular income in this case. If scheme administrator wants, a non dependant can receive benefits, but it must only be in the form of a lump sum (and this lump sum will be tested against the LSDBA if Kathy dies before 75)
If there is NOT a surviving dependant: Scheme administrator can choose anyone to receive benefits and it can be of any type (lump sum, reg income or annuity).
What is a dependant, nominee and successor
Dependant - the members widower, the members child under 23 at time of death, members child who was dependant on member at time of death because of mental/physical impairment (can be older than 23), someone who scheme administrator thinks is dependant on member financially (doesnt have to be married)
Nominee - Nominated by the member to receive benefits from pension funds on members death (if no nominee, the scheme administrator can only choose a dependant that fits into the definitions above, but if not dependants and no nominee, scheme administrator can choose anyone.
Successor - An individual who is nominated by a dependant or nominee to receive their dependant or nominee benefits
The Continuing Account of a Deceased Investor
If an ISA saver in a marriage dies, their spouse can inherit a one-off additional ISA allowance (the ‘Additional Permitted Subscription’ (APS)) set at the higher of the value of the deceased’s continuing ISA on the date of death or on the date when the investments wrapped in the ISA are passed on. Once probate has been granted, the surviving spouse can either encash the investment they have inherited (that was formerly in the deceased’s ISA wrapper) and re-invest the proceeds using the inherited ISA allowance, or they can invest monies from another source to use the inherited ISA allowance.
After the account holder’s death, their ISA becomes a “continuing account of a deceased investor” (CADI).
The CADI can remain open for up to 3 years and 1 day from the date of death.
After 3 years and 1 day the account loses its tax-free status and must be closed or transferred as part of the estate.
Claim APS Allowance Within 3 years of death (or 180 days post-closure).
Make Cash APS Contribution Within 3 years of death (or 180 days post-closure).
Make In-specie APS Contribution Within 180 days of receiving the investments.
ISA CADI Tax-Free Status Ends 3 years and 1 day from the date of death.
Ie if the ISA is closed the spouse then has 180 days to boost their ISA allowance. If the ISA is transferred to the spouse
Example 1: APS Set at Date of Death Value
Scenario:
John passes away on 1st January 2025 with an ISA worth £50,000 on the date of death.
His ISA remains open as a continuing account (CADI) and grows to £55,000 by the time the investments are transferred to his estate or beneficiaries.
APS Allowance:
The APS allowance is based on the higher value:
Value at date of death: £50,000.
Value at transfer: £55,000.
APS allowance = £55,000.
What the Spouse Can Do:
Jane, John’s wife, can:
Encash the inherited ISA investments and re-invest up to £55,000 into her own ISA using the APS allowance.
Use her own funds (e.g., cash from savings) to contribute up to £55,000 into her own ISA, even if she hasn’t inherited the actual ISA funds.
Example 2: Using the APS from Savings
Scenario:
Sarah inherits an APS allowance of £30,000 from her husband, David, who passed away on 1st June 2024.
David’s ISA was worth £30,000 on the date of his death, and Sarah does not inherit the actual ISA investments because they were distributed to other beneficiaries in the estate.
What Sarah Can Do:
Sarah still qualifies for the APS allowance of £30,000 and can:
Use her own savings to contribute £30,000 into her ISA, taking advantage of the APS allowance.
Spread the APS contributions over multiple payments, provided all contributions are made within the APS timeframes (e.g., 3 years from death or 180 days post-closure).
Example 3: Timing for APS Contributions
Scenario:
Emma inherits an APS allowance of £40,000 from her late husband, Tom, who passed away on 1st July 2025.
Tom’s ISA is closed on 1st October 2025 (after probate and estate administration are completed).
APS Contribution Deadline:
Emma has 180 days from the closure date (until 29th March 2026) to use the APS allowance if contributing from her own funds.
If she does not act within the timeframe, the APS allowance will be lost.
- Lifetime Mortgage
You take out a loan secured against your home, but you retain ownership of the property. The loan, plus any accrued interest, is repaid when you pass away or move into long-term care. - Home Reversion Plan
With this option, you sell a portion (or all) of your home to a provider in exchange for a lump sum or regular income. You retain the right to live in the property rent-free (or for a nominal rent) for the rest of your life.
Key Features:
You receive less than the market value of your home (typically 20-60% of its current value).
When the property is sold (after your death or move into care), the provider takes their share of the sale proceeds.
Equity release affects the value of your estate in significant ways, as it reduces the amount of equity in your property that can be passed on to your beneficiaries
Equity release affects the value of your estate in significant ways, as it reduces the amount of equity in your property that can be passed on to your beneficiaries. Here’s how it impacts estate values, with explanations and examples:
- Reduction in Inheritable Assets
When you use equity release, either through a Lifetime Mortgage or a Home Reversion Plan, the amount owed to the equity release provider is deducted from the value of your estate upon death or sale of the property.
For Lifetime Mortgages:
The loan amount, plus any accrued interest, reduces the total value of your estate.
Over time, the compounding effect of interest can significantly increase the amount owed.
Example:
Property Value: £300,000
Equity Released: £50,000
Interest Rate: 5% (compounded annually)
Time Passed: 10 years
At the end of 10 years, the amount owed will have grown to approximately £81,445, reducing the estate value by this amount. If the property is still worth £300,000, the inheritable estate will be £218,555 (£300,000 - £81,445).
For Home Reversion Plans:
The portion of the home sold to the provider is no longer part of your estate.
You receive less than the market value of the portion sold, so the estate loses out on potential property value appreciation.
Example:
Property Value: £400,000
You sell 50% of the property for £100,000 (25% of market value).
When the property is sold after death for £500,000, the equity release provider takes £250,000 (50% of the sale value).
This leaves only £250,000 as part of the estate, compared to £500,000 if no equity release had been used.
Defined Benefit (DB) pension schemes typically provide a spouse’s or partner’s pension after the scheme member passes away. This is a survivor’s benefit that ensures the spouse or dependent partner continues to receive income in retirement.
Upon the death of the scheme member (either before or after retirement), a reduced pension is paid to their spouse or civil partner.
The amount and duration of the payments depend on the scheme’s rules.
Percentage of Member’s Pension:
The spouse’s pension is often a percentage of the pension the member was entitled to, such as 50%, 66% (two-thirds), or 100%.
How far back can you top up your statepension?
How Far Back Can You Top Up?
6 years in the past.
If you’re already receiving your State Pension, you can no longer make voluntary contributions to increase your pension for the years you’ve already started receiving it. However, you can make contributions for the years you weren’t receiving it subject to 6 year rule
For example:
If you started receiving your State Pension in 2020, but you discover that you have gaps in your National Insurance record from the years 2015 to 2019, you can still pay voluntary contributions to cover those years.
But you cannot pay for the years from 2020 onwards to increase your pension amount because you are already receiving your State Pension.
In Kathy’s case, she is in receipt of the state pension so she can only make contributions on the years she hasnt been receiving it, in line with the 6 year rule.
A Chargeable Lifetime Transfer (CLT) occurs when a person makes a gift into a discretionary trust (or any other type of trust) that exceeds the nil-rate band for inheritance tax (IHT).
IHT Rate for CLTs: For CLTs, the initial IHT charge is typically 20% on the amount that exceeds the nil-rate band, immediately at the time of the transfer.
The 6% periodic charge is a periodic inheritance tax charge that applies to discretionary trusts. This is not a one-off charge, it is applied every 10 years.
How it Works:
Every 10 years, the trust is valued, and a periodic inheritance tax charge is applied to the value of the trust assets.
Charge Rate: The charge is 6% of the value of the trust assets above the nil-rate band. This charge applies to the value of the trust when it exceeds the available nil-rate band.
Let’s say that in the 10th year of the trust:
The value of the trust assets is £1,000,000.
The nil-rate band is £325,000.
Excess Value: £1,000,000 - £325,000 = £675,000.
6% Charge: 6% of £675,000 = £40,500.
If the total value of the trust is below the nil-rate band (after accounting for all gifts, assets, and growth), there will be no periodic charge applied.
Example:
If you place £300,000 into the trust, and after 10 years the trust’s value remains £300,000, this is still below the nil-rate band of £325,000, and no 6% periodic charge will apply on the 10 year annervsary.
Placing a life insurance policy in a discretionary trust can be an effective way to manage the proceeds of the policy, especially for inheritance tax (IHT) planning. It allows for the life insurance benefit to be paid out in a way that can minimize IHT liabilities and ensure that the funds are used as intended.
When a life insurance policy is placed within a discretionary trust, the death benefit (the amount paid out when the policyholder dies) will pass to the trust rather than directly to the beneficiaries.
If the policy is written into a trust, the policy proceeds are generally not included in the policyholder’s estate for IHT purposes.
If the policy proceeds are held in a discretionary trust, the funds are protected from the creditors of individual beneficiaries
Because the policy proceeds are paid into the trust, they are not subject to the probate process (the legal process of administering an estate), meaning they can be accessed more quickly by the beneficiaries.
PET = The transfer is made to an individual (e.g., a family member or friend), and the donor is gifting an asset of equal value (i.e., the donor and the recipient are considered on equal footing in terms of the value of the gift).
CLT = If the gift is made into a discretionary trust, the trust is considered a separate taxable entity, and therefore there is no equal footing between two individuals
Environmental (E) - This refers to how a company or investment impacts the natural environment.
Social (S) - how a company manages relationships with employees, suppliers, customers, and communities
Governance (G): How a company is governed and whether it is managed in a transparent, ethical, and accountable way.
SHELL might have a great social score but there Environmental is obvs bad
AIM (Alternative Investment Market) shares can be an effective tool for Inheritance Tax (IHT) planning in the UK, due to their potential to qualify for Business Property Relief (BPR)
But obvs high risk
