Chapter 1 Flashcards
what does Business contingency planning help with?
helps to prevent a person’s business from collapsing in the event of their illness, retirement or death
what is Retirement planning?
saving for retirement - helps to reduce a person’s chances of ending their life in poverty / being a burden on their family in old age
what is Later life/death planning
people who intend to pass their wealth on to the next without an substantial amount going to IHT
what are the definitions of Predictable events & Unpredictable events:
require a sum of money at some point in the future - school fee’s / weddings
may occur at some point in the future or not at all. A person may plan for these by paying regular premiums into an insurance policy but it not pay out
what is the financial priority for Childhood
Establish savings
2021 - the average age to leave home is 26
cost of raising one child to age 21 is £230,000 on average
JISA’s can be use for savings
what is the financial priority for Young single & Young partnered
protect income
what is an Emergency fund?
lump sum to meet urgent or unexpected expenditure.
short-term savings
6 months of income
what is the financial priority Starting a family / family with older children
financial protection
family’s investment needs also increase. - saving for education
Parents now need to prioritise their own pension and investment
what is the financial priority Post-family/pre-retirement
protect income / invest
what is the financial priority Retirement (the early years: ages 55 to 70)
Preserve income and wealth - pension income only
what is the financial priority for Later life/receiving care
Spend income; redistribute wealth - IHT
what are the Simplified personal financial lifecycle
Vulnerable years - early years of a long-term relationship and the starting of a family,
relatively low income and additional child-related expenses. Protection against death and ill
health is the highest priority.
relaxed years - people enter their 40s, with increased income and good health. pensions and savings needs can take priority.
anxious years - enter their 50s and beyond, costs of protection cover and longterm care needs are a concern. Protecting existing savings and investments from inflation and investment risk becomes a priority.
what is the ‘Core duty’ within the Code
treat people fairly regardless of: age, disability, gender reassignment, marriage
and civil partnership, pregnancy and maternity, race, religion and belief, sex and sexual
orientation’.
what do Her Majesty’s Revenue and Customs (HMRC) do?
acts as the UK’s tax authority and is responsible for collecting all taxes and setting
out tax legislation
what is personal allowance? & how much
is an amount of income that can be received free of income tax
personal allowance amount is £12,570 - depending on
- An individual who is registered blind qualifies for an additional personal allowance - £28
- adjusted net income in excess of £125,140 in the 2023/24 tax year will lose all their
personal allowance for that tax year.
what are pension contributions & their purpose
Government provides tax reliefs to help individuals make their own savings for retirement and reduce the financial burden on the State.
why is there an Annual ISA allowances
encourage individuals in the UK to save using products which
provide a tax-free income
what are New business start-ups
supported through the provision of tax deductible allowances and a reduced tax rate on selling business assets.
how does tax help with property investing to long-term home ownership
influenced through
the relative increase in stamp duty on buy-to-let property purchase.
what are the sources of income and exempt from income tax
Sources of income exempt from income tax
- Employment income Individual savings account (ISA) income
- National Savings Certificates
-National Savings & Investments Premium Bonds
-National lottery winnings
Compensation awards
Certain State benefits
Sources of income liable to income tax
Employment income
Self-employed profits
Most pension income
Interest on savings
Dividends from company shares
Certain State benefits
Rental income
Additional benefits paid from an employer
Income bands, 2023/24
£0 to £37,700 20% (basic rate) 8.75% (basic rate)
£37,701 to £125,140 40% (higher rate) 33.75% (higher rate)
£125,140 and above 45% (additional rate) 39.35% (additional rate)
what is Pay As You Earn (PAYE) & how does it work
allows the employer to deduct income tax from the individual’s pay.The employer
then pays this amount to HMRC each month to settle the liability.
Self-employed individuals will settle their full income tax liability through self-assessment
each year as they do not use the PAYE system.
Other income tax allowances and reliefs
0% starting rate of
income tax - individuals have taxable non-savings income (after the personal allowance) of less than £5,000.
Marriage allowance - enables a maximum of £1,260 of the 2023/24 personal allowance to be transferred
between them.
Married couples’
allowance - allowance is applied as a tax reducer
individuals in a marriage/civil partnership was born prior to 6 April 1935.
what is National Insurance fund used exclusively to pay
for
- State Pension;
- Jobseeker’s Allowance;
- Employment and Support Allowance;
- Maternity Allowance; and
- Bereavement Payment.
what are the four key drivers of vulnerability in customers
Health, Life events, Resilience, Capability
Gary has earnings of £108,000, and has no other source of income. After deducting the personal allowance, how much of this income would be subject to income tax?
£99,430.
Greg lives in England, has a salary of £57,000 and receives dividends from a share portfolio of £6,500. He has no other source of income. The maximum rate of tax he would pay on his income is:
40% on his salary and 33.75% on some of his dividend income.
Inheritance tax (IHT) is payable on:
is payable on the value of an individual’s assets on their death and transfers of assets throughout an individual’s lifetime.
The key exemptions from IHT are:
transfers between spouses/civil partners during their lifetime or on death; and
* gifts made to registered charities during life or on death.
what is a will?
a legal document put in place by an individual during their lifetime which details
their wishes with regard to their estate on death.
What is the nil rate band for IHT
£325,000
What happens to the unused nil rate band between spouses/civil partners
unused nil rate band is transferable between spouses/civil partners, as a percentage, on
second death
Any excess over the available nil rate band is chargeable to IHT of what %?
40%
IHT is reduced to 36% if the individual leaves at least
10% of their estate to charity on death.
what is the Annual exemption on IHT
Each individual has an annual exemption of £3,000 per tax year. Any unused annual exemption can be carried forward for a maximum of one tax year.
What is a Residence nil rate band
offset against the value of residential
property transferred to a direct descendant (i.e. children and grandchildren). The additional
nil rate band for residential property is £175,000 for 2023/24.
- any unused percentage of the residential property nil rate band can be transferred to a surviving spouse or civil partner on death.
what is Capital gains tax (CGT)
payable by individuals and businesses on gains made on the disposal of certain assets.
Examples of Resilience vunerability
Low or erratic income, over-indebtedness, Low savings, Low emotional resilience
examples of Capability vulnerability
Low knowledge or confidence in managing
financial,
Poor literacy or numeracy skills,
Poor English language skills,
Poor or non-existent digital skills, Learning difficulties,
No or low access to help or support
Stamp duty reserve tax (SDRT) and stamp duty
payable on the paperless purchase of shares at a rate of 0.5%.
Stamp duty is payable on non-paperless
transactions at a rate of 0.5%
Self employed - What NI contributions will be made based on profits
class 4
chargeable asset for capital gains tax
2nd home
The definition of taxable income is
gross income minus the indviduals personal allowance
