Case Study 1 Aim 3

Question 1

Further info required

8 points

Answer 1

Income required at retirement
Interest rate of deposit account
Base cost of UT
Any brought forward CGT Losses
Size of emergency fund required
Willing to transfer UT to Carmen
Objectives of current holdings
Willingness to invest in other asset classes

Question 2

Factors to consider when providing advice on Aim 3

13 points

Answer 2

Fully used ISA allowances
Taking a fixed monthly income of 500pm
Declan is HRT / has lower PSA
Carmen has £1000 PSA
Carmen has starting rate for savings band
Both receiving dividends of £6,375
Using £2000 dividend allowance
Anything above is taxed at 8.75% for Carmen and 33.75 for Declan
140k gain on UT
Declan CGT is 20% in excess of cgt allowance, carmen 10% in BRT band
can invest 3,600 into pensions each year
Plan to gift 200k to grandkids
IHT potential of 292k

Question 3

Recommend + Justify Actions to improve tax efficiency

5 points + justifications

Answer 3

3,600 pension top up. Tax relief. Tax free growth. Flexible. IHT Free. Unused personal allowance so may be tax free
Partial Interspousal transfer of UT. Ensure Declan’s dividend maximise his dividend allowance. If he exceeds he is taxed at 33.75%. Carmen is only taxed at 8.75% in BRT limit. On disposal Declans CGT is 20% but Carmens is only 10% in BRT
Top Up income from UT encashments instead of ISA. Locks in gains / makes use of CGT annual allowance.
Review funds in UT/ Use corporate bond holdings. Funds focused on growth rather than income to minimise dividends. Corporate bonds provide income so can use PSA.
Hold More of Deposit Account in Carmens name as she has a hi9gher PSA of 1000 instead of 500. Also has starting rate of an extra 5000.

Question 4

Describe how an LPA works + benefits of them

10 points

Any Restrictions for gifts

Answer 4

Can only be registered whilst they have mental capacity
Must be a certificate from prescribed person confirming they understand LPA
Not been pressured into signing documents
Two types: Health and Wellfare / Properties and Financial Affairs
Can setup one or both.
Need to register with Office of Public Guardian
If no LPA is in place, would need to apply to Court of Protection which is time consuming.
Deputy is appointed by court rather than family members
LPA can appoint more than 1 person to act
LPA can provide peace of mind

Normal gifts can be made
Larger gifts e.g. for IHT planning, cannot be made.

Question 5

Explain how JISA works + why it may or may not be suitable

8 points

Answer 5

Must be opened by a parent
16-18 year olds can open themselves
Can contribute 9000 for each grandchild per annum
Gift is a PET
Wide fund choice
All returns are tax-free
Child can manage from 16 but not withdraw until 18
No control after they turn 18.

Question 6

Factors when reviewing IHT

8 points

Answer 6

Health
Value of Estate
Wills updated
Income / capital needs
Was gift made?
Willingness to make further gifts
Change in legislation
ATR / CFL