Case Study 2 (24-10)

Question 1

Explain to Kabir why it is important to update his Will and any death benefit nominations in the near future.
(10)

Answer 1

• Ensure it meets his wishes.
• Now divorced/Will not invalidated by divorce.
• Hannah treated as if deceased/maybe treated as intestate.
• Hannah is his current beneficiary (Will and Death-In-Service (DIS)).
• Trust needed in Will to protect children.
• Kabir can nominate trustee of his choice.
• May need to change executors/cannot be Hannah.
• Nominate children as beneficiaries on DIS/Pension.
• Trustees may still pay to Hannah as she has dependent children/Hannah could spend money intended for children/trustees would use discretion.
• Joint property can go into Trust for Emma’s lifetime on Kabir’s death.

Question 2

Recommend and justify a suitable protection product that Kabir could set up, which provides a monthly income, to ensure the continuation of the ongoing maintenance payments to his ex-wife in the event of his death.
(14)

Answer 2

• Family Income Benefit.
• Single Life/Kabir is life assured.
• Tax-free payment.
• In Trust for Hannah/children/Life of Another.
• Speedy payment/no delays/avoids probate.
• Sum Assured of £18,000 per annum (minimum)/£1,500 per month.
• Term of 7 years/to age 18 for Anika.
• Index-linked.
• To keep pace with inflation.
• Guaranteed premiums.
• To ensure affordability.
• Waiver Of Premium (WOP).
• To pay premiums in event of sickness/disability.

Question 3

Explain to Kabir a range of actions that he could take to improve his pension benefits following the implementation of the pension sharing order.
(12)

Answer 3

• Increase personal contributions.
• Can use his personal equity holdings/cash.
• Can use carry forward (if available).
• Invest up to his salary (£85K).
• Tax relief at 40%.
• Check for higher employer matching.
• Is salary sacrifice available?
• Reduces National Insurance (NI)/employer may share NI savings.
• Pound cost averaging.
• Exposure to higher risk markets.
• Potential for growth.
• Matches his adventurous Attitude to Risk.

Question 4

State five benefits and five drawbacks for Kabir of using Junior ISAs to build up funds to meet Anika and Rashi’s future university costs.
(10)

Answer 4

Benefits:
* Tax efficient/potential for growth.
* Does not use own allowances/no £100 parental rule/anyone can contribute.
* Range of funds/cash and stocks and shares.
* £9,000 allowance is likely to be sufficient.
* Flexible/can vary contributions/lump sum or regular.

Drawbacks:
* Children can choose funds from 16/loss of investment control from age 16.
* No access if needed earlier than 18/children can access at 18.
* Children may not use for university.
* Investment risk/inflation risk on cash.
* Charges/need for advice.

Question 5

Identify and explain the actions that Kabir could take to improve the tax-efficiency of his individual equity holdings in the various UK smaller companies.
(10)

Answer 5

• Bed & ISA.
• No Income Tax or CGT in ISA.
• Identify base costs of individual shares.
• Any capital losses registered.
• Can use losses against gains/can carry forward indefinitely.
• Use CGT exemption of £3k.
• Sell each year to rebase purchase cost.
• Increase pension contributions to extend Basic Rate band.
• Reduce dividend tax from 33.75% to 8.75%.
• Reduces CGT charge from 20% to 10%.

Question 6

Explain to Emma the benefits for her of setting up a personal pension plan.
(12)

Answer 6

• Currently no benefits/may not have sufficient income in retirement.
• Cannot rely on inheritance from parents.
• No benefit due from Kabir/he is nominating children.
• 40% tax relief.
• Tax-free for Income Tax/CGT.
• Gives ability to use carry forward in future years (inheritance due).
• Potential for growth.
• Can invest in ESG funds/funds can match Attitude to risk.
• Long timeframe for investment/age 57-58/pound cost averaging.
• Flexible contributions (suits her self-employed status).
• Can provide flexible retirement benefits (FAD/UFPLS/annuity).
• PCLS available/can generate tax efficient retirement income.
• Can nominate beneficiary/IHT free.

Question 7

Identify eight key issues that a financial adviser should discuss with Kabir and Emma at the next annual review.
(8)

Answer 7

• Change in personal circumstances/health/marriage.
• Change in income/expenditure/tax status/salary increases for either.
• Attitude to risk/Capacity for loss.
• Rebalance/asset allocation/performance.
• Protection for maintenance in place?/Plans for property purchase.
• Use of allowances/ISA/CGT/Pension.
• Charges.
• Change in legislation/taxation/new products/economic conditions/interest rates.